How Diversification Leads to Financial Security
We often hear about diversification when talking about investments. Advisors recommend that you have a mix of stocks from different sectors (energy, technology, consumer goods) along with bonds and cash to help spread out the risk when the market goes down. Diversification isn’t just for the stock market, however.
Growing up, I learned about a different kind of diversification that I think is important for most people to consider. Diversification in your streams of income can help spread out your risk in case of job loss, illness, death of a spouse or divorce, but can also help increase your income and build your experience. My parents owned a farm, but also had jobs working for companies. The farm had several different streams of income. They raised a herd of beef cattle that they sold, but also butchered a few so we had a good supply of meat to feed our family. They grew several different crops each year because the prices at the market fluctuated and some crops did better or worse depending on the weather. We also had a large garden and sold sweet corn from the front yard, kind of like a lemonade stand. My mom canned or froze many of the vegetables to help supplement the groceries they had to buy for our family. The had real estate that they sold on land contracts or rented out which added interest and rent to their income at various times.
Think about these lessons and how you can apply them to your situation. If you have kids, you can start them at a young age with having a lemonade stand or baking and selling cookies or dog treats, teaching them to do pet care or babysitting. You can take these lessons further by teaching them to donate some of their earnings to charity and to invest some of it for their future, like in a Roth IRA or college fund. There is no age too young or too old to start learning about taking care of your money.
If you have a full time job working for someone else, you could consider making time for some kind of side business such as childcare, jewelry making, T-shirt printing, woodworking, consulting, farming, Uber, Doordash, reselling yard sale finds online or furniture refinishing. This could be something you are passionate about or enjoy as a hobby that you could turn into an income-producing opportunity. If you own your own business, you may have different income streams in the types of products you sell or services you provide. You could work with other business owners to share your expertise and experience as a mentor, trainer or a coach. Consider owning a vacation or long-term rental property as another way to increase your income. These things do cost time and effort, but can be worth it in the long-term as you hopefully gain equity and experience and possibly find something you love doing!
I have met so many people since I started my business that have a main job working for a company, but have started a business, own a franchise or have a side job doing something else. Sometimes it’s related and sometimes it’s not. Most of these people really enjoy these side-gigs as they get to meet new people, socialize, feel more fulfilled and shore up their bank account. If you don’t have diversification in your income streams and only rely on your salary, I challenge you to think about the ways you can “branch out” to have a more solid foundation in your financial house. If you do have something to supplement your main income, I’d love to hear about it! What do you do?
