When you’re self-employed, you’ll have more control over your income than you would in a conventional full-time job. If you want more work and more money, you can hunt down more clients to get it. If you want more free time and less income temporarily, you can optimize your workload for that as well.
However, no matter how carefully you plan, you’ll still be subject to unexpected swings as business changes. One of the best tools you have to protect yourself against this volatility is income diversification.
Why Diversification Is Effective
Diversification is a way to establish multiple lines of income from multiple independent sources. It’s an effective strategy because different industries and income sources will be affected by market conditions differently, resulting in a complementary balancing effect. For example, if your consulting work starts to dwindle, you may find rent prices increasing at the same time. Also, as you gain more experience in each area, you’ll experience a cumulative rise in income, resulting in a faster path toward wealth and financial security.
Strategies for Income Diversification
There are hundreds of ways to secure income, some of which are forms of “active” income that require ongoing work, and some of which are forms of “passive” income that don’t require much ongoing maintenance, but may require significant upfront work.
These are some of the most common and approachable ways to diversify your income
- Trade stocks. Your first option is to invest in the stock market. Many amateur investors have a persistent fear of trading, recognizing the fact that the market could grow or shrink, depending on hundreds of different variables. However, this fear is mostly unfounded; the stock market has a long, stable history of growth across almost all market sectors, so even temporary downturns can be easily overcome. Investing conservatively, in stocks that pay regular dividends, is a good way to secure additional recurring income without risking much of your initial capital.
- Invest in real estate. Another option is to invest in real estate, provided you have the capital to do so. Real estate has been another source of consistent returns for homeowners. So as long as you choose a suitable area, you can almost guarantee a return on your investment. In the meantime, you can rent your property to tenants and earn enough to cover your monthly mortgage payment. You may encounter trouble with tenant turnover and ongoing repairs, but otherwise, this source of income is relatively passive.
- Start a side business. If you’re already self-employed, starting another business may sound like too much work, but depending on the type of business you want to start, you may not have to invest much additional time. For example, if you have a creative hobby (such as making arts or crafts), you could easily sell some of your work for an additional profit without the need to invest time in something entirely new or different.
- Educate yourself. Though you may not earn income from the effort right away, educating and training yourself in an unrelated discipline is a good way to secure a broader range of future prospects. In case this business doesn’t develop the way you hope it will, it pays to have a backup career in mind.
A Note on Time Management
Every source of income will require a time investment, whether it’s a lump sum of time at the beginning of the strategy, or an ongoing, dedicated number of hours on a weekly or daily basis. The biggest problem you’re likely to face in diversifying your income streams is time management. Fortunately, you can use these tips to offset the challenge:
- Remember your main priority. Your main business should be your main priority; if any of your side source of income starts to infringe upon that main priority, you’ll need to reconsider your investment there. It’s better to do one thing well than five things poorly.
- Delegate when you can. If you have the option, consider delegating some of your work in each area. For example, you could hire an assistant for your main business, or work with a property management service to handle some of your real estate responsibilities.
- Rebalance your effort distribution regularly. Over the course of your diversification process, you’ll want to rebalance your “portfolio” of income sources. If you find that one source is more profitable than the others, you may want to spend more time there. If one source eats up too much of your time, you may want to cut it out entirely.
Within a few months of your new income distribution, you’ll start to realize the benefits. All it takes is one slip in incoming work to make you grateful you have a backup source.