Subscribe
In our last article I showed you how to prioritize your bills if times are tough and money’s tight. In this installment we’re going to cover what is, in my opinion, a major financial blunder, relying on someone else for your income.
What would you do if, tomorrow, your company announces it’s closing its doors? Are you in a position where you could cover your expenses for 6 months to a year, or are you like most people, facing major financial problems if you suddenly lost the income from your career?
Common knowledge suggests that it’s safer to work for a stable company, relying on that company for your income, than to generate your own income sources. I’m not going to argue that receiving a steady paycheck as a full-time employee from a company like Proctor and Gamble is less risky than jumping straight into entrepreneurship. I mean, that would be a little naive of me in light of a study done by the Small Business Administration stating that over 50% of small businesses fail in the first five years.
Listen, to be completely straight, I also have to admit that even if you own your own company, your income is still tied to someone else and, at least somewhat, determined by factors outside of your control. However, there are several major reasons why you should, at the very least, diversify the sources of your income.
Understanding Market Conditions and Company Performance
I have several websites that generate a small percentage of my monthly income, this being one of them. If, tomorrow, Google decided to remove my site from it’s search engine, I’d see a large decline in the number of visitors. It may be only temporary, but I’d likely respond by searching for other sources of traffic to bring that income back up. Simple enough, right? Now what if I work on an assembly line for Proctor and Gamble? Do you think I have any idea what challenges the company may be facing? Do you think I’d have any opportunity to search for other sources of income before I’m laid off if business slows down? Not bloody likely! Rather, like the employees at New Century Mortgage in Irvine, California, I’d show up to work one day and find my desk cleared out and a letter that the company is closing. No warning, no time to find other sources of income, just poof, and my paycheck is gone.
Diversify to Spread Risk
Ever heard the saying, “Don’t put all your eggs in one basket?” Most stock experts would agree, you should never put all your money in one stock because, if that stock suddenly took a nose dive, you’re out the majority of your investment. If, on the other hand, you spread your money around several stocks, if one tanks, you’re not SOL. It’s likely that, when it comes to investing, you don’t put all your eggs in one basket; instead, you diversify and spread the risk. While most investors stick to this strategy with their investments, they ignore this rule of thumb when it comes to personal income (ok, I know, technically investingis diversifying your sources of income, but you get the point).
Picture how you’d feel and what kind of financial position you’d be in if, tomorrow, you went to work and found that the company was closed. No more paychecks, no severance package, even your company retirement plan is down the drain. Do you feel a little nervous thinking about that possibility? Please, for the love of God, diversify your income.
You’re Never Going To Get Rich Working For Someone Else
Do you want true financial freedom? You know, the kind of freedom that lets you wake up on a Monday and decide you’d rather go snorkeling in the Bahama’s than go to work? As long as you work for someone else, you’ll never have that freedom. Sure, the vast majority of people never create the type of wealth I’m talking about here, but look at it this way. Do you think when Bill Gates was tinkering around with computers at the age of 20 that in 20 years he’d be the richest man alive? You never know, that source of income you create for the purpose of diversification may take off one day and make you more money than you could have ever dreamed of. If you’re happy in your current career and are just looking to diversify, then set your goals at that and you can always tweak the plan if things go well. If you’re really looking to excel, then set your goals much higher. Create a business for the purpose of diversification at first, with the intent to grow it into something much larger in the future.
It may be tough, or it may take a long time, but building a business is the only way to true financial freedom. The real reason most people don’t do it isn’t because it’s terribly difficult, nor because business success is only reserved for the lucky, but because most people don’t think they can do it. Fight through your own resistance, it’s the only thing holding you back.
Related Articles:
Save at Least 30% with Debt Rollover MethodDTI - Debt-to-Income Ratio and How it Affects You
New Liabilities May Damage United States’ AAA Credit Rating
Is This the End of the Line for Stated Income Loans?
Jumbo-Conforming Loan Limit Up to $729,750