One of the most popular pieces of financial advice that you will ever hear is that you need multiple sources of income to build wealth. Actually, statistics show that the average millionaire has 7 sources of income and this is why I’m going to take you through 5 reasons why you need to have multiple sources of income!
Reason #1: It Gives You Money To Save and Invest
Let’s face it, relying on one source of income makes investing a hard nut to crack. Actually, even setting aside some money to save can be difficult if you are entirely dependent on one income source. This is partly because necessary living expenses are often overwhelming. By the time you are done paying bills, financing debts, and entertaining yourself, you’ll only have a fraction of your monthly paycheck remaining.
Another reason investing is challenging is that investing is inevitably risky, meaning it can go both ways. You can’t afford to gamble with the same income that you depend on for your day-to-day survival, right? Now, investing works the same way. Since it’s not guaranteed that your investments will yield returns, you should set up another cash inflow that will cushion you if things go south. This way, you’ll find it easier to sustain a comfortable lifestyle and set up a safety net for the future.
Remember, one of the best ways of managing your finances is by working with a budget. A well-structured budgeting plan will help you apportion funds to cater for your monthly expenses, including your savings and investments. The only problem with budgeting is that it becomes even harder to work with a squeezed income.
To ensure that you don’t strain your budget, come up with ways of earning more money so that you can invest without holding yourself back. For example, you can opt to use your day job to pay bills and use the income from your side hustle to invest and save. With such a strategy, you won’t have to lower your quality of life or get yourself into debt to start investing.
In this regard, the other benefit of diversifying your income sources is that it increases your risk appetite in the investment world. In specific markets, high risks translate into higher returns, and you’ll only be willing to take risks if you have more than one source of income. As long as you have enough to cover your living expenses, investing in high-risk markets won’t be scary. You’ll go for it, and you’ll love the results.
Reason #2: Reducing Your Financial Worries Through More Income
Forget the blurb about money not being everything in life. Yes, money may not be the answer to all your life questions, but it will definitely answer most of them. Money can buy you freedom, and for me, freedom translates to happiness; lots of it.
I can name an impressively significant number of problems that money can solve: health, investing, debt, and education, which validates most people’s pressing financial worries. Similarly, you’ll find yourself worrying about money at various points in your life. When this happens, you’ll realize that it boils down to one thing, which is inadequacy. The truth is, financial worries stem from having an unsustainable income. Maybe your boss is too stubborn to give you a pay raise, or your business is taking too long to start earning profits. When your income is limited in this way, you’ll find yourself stressing about making more money and losing the little you have.
Truth be told, nothing is free in this life, and we all have to pay for pretty much everything apart from the air we breathe. You need money to eat well, dress comfortably, live in a nice house, and move from point A to point B. If you bring your dependents into the picture, you’ll find that you have every reason to worry about finances.
But with multiple sources of income, you can quickly eliminate the need to worry. Increasing your income can have benefits to your personal life and your net worth. This is because simply put, you need money to make money. The more income you have, the more income you can attract, which is evident in multiple ways. Boosting your income puts you in a better position to invest more capital that will consequently yield higher returns. Additionally, an increased income will free up your budget by clearing your debts and diversifying your investment portfolio.
Now, telling you to make more money is easier said than done. For me, starting online businesses has helped me substantially increase my own wealth but quite frankly, not everyone has the time or desire to start a business. Luckily, there are easier ways to supplement your income and one that has proven its worth in the past is freelancing. Getting just a couple projects a month is the difference between living paycheck to paycheck and being able to save and invest for the future. However, keep in mind, working overtime hours or getting a part-time job will do as well. Income is income and making more of it is key to getting ahead financially!
Reason #3: Diversify Your Income Risk
What would you do if your primary source of income suddenly vanished? Assuming you got ill, got fired, or were simply forced to down your work tools for whatever reason. Thing is, there’s no single source of income that is entirely risk-averse, be it full-time employment, an investment, or a business. I mean, companies suffer from recession blows, investments fail, and even the most desirable jobs come to a screeching halt. For most of us, income security is an aspect that we often overlook, yet it is very crucial to your wealth-building journey. Income security means diversifying your income risks so that if any source is compromised, you’ll still be able to retain the other sources. You get to beef up your cash inflows in a way that renders you untouchable if one source gets compromised.
In the money market, income risk refers to the possibility of a fund declining in value due to declining interest rates. Let’s say you invest in a mutual fund that buys into short term securities. If the interest rates fall, the returns of that particular fund will definitely decline as a result. In such a scenario, you will need to employ an investment strategy that spreads out the income risk, such that you’ll still have other funds yielding returns for you if the interest rates take a dip.
Similar to the proverbial reference, when you stack all your eggs in one basket, you can only imagine how many losses you’ll be counting if you dropped this basket, and all these eggs broke. You’d rather have many baskets in different places, right? The same way, having a non-diversified income portfolio puts you at a very high risk of losing your income if something happens to your source. The only way to counter this is to put your money in different markets that thrive under different market conditions.
Reason #4: Learning New Ways To Make Money
At such a time when the unpredictability of the job market is prevalent, learning new ways to make money is a wise move to make. The only problem is that even the learning in itself is not free. Learning new skills requires time, effort, and, most importantly, finances. You need money to acquire new, tangible skills or travel to new places and network with individuals that will positively touch on your net worth. If you can fund such ventures, you’ll expose yourself to unique opportunities that will significantly boost your income.
With multiple sources of income, you can easily explore new opportunities to earn you more money and transform you into a better individual. Once you have sufficient income to take care of your necessary expenses, you can then look into learning new money making techniques. It could be a skill you’ve wanted to learn or even a hobby you’ve been holding back on. Luckily, technology has opened doors to countless opportunities that you can grasp and take advantage of. With a fast internet connection, you can learn virtually any skill there is, no matter how difficult. If you can spare some extra money, you can teach yourself a high-income course that will spice up your professional resume, and simultaneously boost your earning potential.
Since you’ll have all your essential expenses covered, you won’t feel guilty about pursuing these other interests at the expense of earning your primary salary. In the real sense, having many income sources buys you time to pursue other things. By doing this, you will be better placed to bounce back if one of your income sources is affected by an economic slump. Luckily, technology opens countless doors that can lead you to multiple sources of income. Through technology, you can start online-based businesses that are better placed to withstand tough economic times.
Reason #5: Being Able To Quit Your 9 To 5
We are no longer in an age where traditional 9–5 jobs hold the keys to financial success. Today, work-from-home jobs thrive like never before, and the level of freedom associated with them is unmatched. Almost everyone craves the privilege of making money while still being in full control of their schedules — you can’t achieve this with a 9–5 job. Additionally, working for yourself puts you in the driver’s seat when it comes to your take-home income. Who wouldn’t love enjoying all the profits?
When you work for someone, however, you don’t have a choice on when to show up to work or when to leave. On top of that, you find yourself slacking and only pushing yourself to achieve the bare minimum that will earn you the next paycheck. Eventually, you end up holding yourself from maximizing your full potential. The only way to revert this situation is to start something of your own. It could be a side business, a real estate investment, a freelancing career, or any other investment form.
For you to grow your own businesses or investments, you need ample time and energy to focus on them. This ultimately means waving a rigid work schedule goodbye and becoming your own boss — still, it’s not as easy as it sounds.
Before you quit your day job, you need to ensure that you have additional income sources to support you before your business or investments pick up. Your business will definitely go through a slump in its initial phases, and you’ll need financial back-up when that happens. If you dream of steering your own company someday, you need to start crafting an escape plan from your day job. Part of this plan is to set up multiple sources of income to secure an emergency fund when you finally quit your job!