One of the tips that features frequently in any ‘steps to financial freedom’ content is to ‘diversify your income’, but what does it mean and why is it so important?
Multiple income streams
Much like the idea of a diversified investment portfolio where you invest in different asset categories, diversifying your income simply means to have multiple streams of income. The idea is that your income comes from a combination of different sources such as a full-time job, a small business, freelancing and investing. You do not need to overrun your life with different business ventures alongside your career or SME, but picking up some extra freelance work on the side can help to give you a financial boost.
Now that you know what we mean by diversifying your income you may be wondering, ‘why would I need to have multiple streams of income?’ 2020 has provided the biggest lesson in why having different sources of income is important.
With unemployment numbers creeping up and headlines of large companies making staff redundant due to the pandemic, having a diverse source of income can provide you with a sense of ‘income insurance’ should you lose your job or see a drop in your primary source of income.
Outside of the pandemic, it is still a good idea to continue to keep up multiple streams of income as it can boost your cash flow and allow you to put more money into savings for the future or splash out on some luxuries in the present.
It is not too late to get started
If you have any small business ideas that you have always wanted to pursue then now is the time to make them a reality. Having a small business alongside your career is a great way to boost your income while exploring your passions. Do you have a skill you can teach or a service you can provide? You can make money teaching others or providing that service freelance. The most important idea to take away from this is that it is not too late to get started.