As a financial planner, I am constantly explaining the benefits of diversifying investments to my clients.  In finance, diversification is a way to reduce your exposure to risk by investing in a wide variety of different asset types.  But what about diversifying your income streams as well? What if you had multiple ways to earn money? For example, from your job or business, a side hustle, or investing in real estate and the stock market.  It seems like a simple way to bring in more money with less risk, in case one of the streams dries up. But is it? The answer may not be as simple as it seems.

Pros

If you follow financial blogs, or read books on entrepreneurship, you are likely to have read about why having multiple streams of income is so beneficial, or even crucial.  And yes, there are clearly some obvious benefits. If you have more than one way to earn money, there’s a good chance you may bring in more total income overall. There is also some level of protection from job loss.  If you are an employee and lose your job due to a lay off or illness, your additional streams of income may alleviate some of the stress of complete loss of income. The same may be true for a business owner whose business must close its doors.  Furthermore, if your primary job or business pays the bills, your additional income sources can also provide you with the freedom to pay down debt faster, save more for retirement, and even enjoy the luxuries that your primary income source doesn’t cover.  Finally, if you aren’t completely fulfilled by your nine to five job, adding some free-lance work, investing on the side, or starting a business, may serve as your creative outlet. It can allow you to earn money doing something you enjoy and are passionate about.

Cons

I do agree that the idea of having multiple streams of income sounds positive.  Perhaps it’s not the idea of it, but the actual implementation of this lifestyle that isn’t as easy as it seems.  This is where I see some obvious challenges. First of all, creating one successful stream of income is pretty tough as it is, so creating more than one may prove even more difficult.  Each stream is going to require its own set of skills, knowledge, and expertise, which all require time and energy. There is only so much time in the day. This begs the question as to whether you are willing to sacrifice other areas of your life for more earning power.  For example, time with your spouse, family, friends, your health, and your hobbies. Life is a juggling act, and when you add additional balls to the mix, you may be left feeling a bit spread thin.  

Practical Tips

If you’re still keen on the idea that having multiple streams of income is a smart way to build wealth, you are not alone.  So, here are some practical tips when you decide to get started. 

• Don’t begin everything all at once.  Make sure you have at least one steady income stream before you begin a second venture.  
• Take the time to do your research and develop the skills you need to be successful.  Business is competitive, so get your systems in place.
• Consider adding products or services that have similarities to your other sources of income.  This is a way to leverage your current skill set.
• Most importantly, make it a point to check in with yourself on a regular basis.  Is the additional income coming in at too high a price to maintain a healthy work life balance?  If so, it’s time to reassess.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.