The Importance of Diversified Income

Having a side hustle helps to diversify your income sources, but why is that so important in today’s economy? As it turns out, it is extremely important in regards to financial stability. It can mean the difference between sailing through times of economic catastrophe without so much as breaking a sweat or losing a single night's sleep or having your hair fall out from worry as you try and make it through the day, fearful of how you're going to put food on the table.

Although the traditional work model emphasizes the need for only one or two income sources, this is not necessarily the most stable option. Job security no longer exists the way it has in previous years. “In fact, some would go so far as to say a talented small business owner who has the flexibility to enter new markets or adjust his cost structure, provided he or she has the financial knowledge to make wise decisions, is in a far less risky situation than a school teacher who could be laid off due to budgetary concerns despite the potentially higher volatility of cash flows.” Those who rely on a single income source and then are laid off, for whatever reason, are the ones who are more likely to dip into—or be forced to drain—their retirement funds or savings.

One of the best examples of what can happen due to a lack of diversification of income sources are sports stars. Many of them are pretty young when they are drafted into professional sports and they are suddenly imbued with a huge influx of cash. They buy fancy cars and huge houses and an expensive lifestyle, but a sudden and unexpected injury can end that gravy train and then these athletes can quickly run out of money if they didn’t invest in their futures. “As a result, an estimated 78 out of 100 NFL players are typically in financial distress within two years of retiring. For the NBA, the figure is 60 out of 100.”

By diversifying your income, you can ensure better stability when the unexpected happens—and it will happen as we now know all too well. There are always unforeseen events and by creating a cushion of diversification, you can create a safety net to ensure you can weather any storm. The best time to start is today.