What Is Income Diversification?

While many financial experts stress diversification in investments, some also strongly advocate the adoption of income diversification. This practice eschews a traditional single-job model for a customized working plan that includes several different sources of income. Using multiple means of generating income can be a safeguard against market downturns or employment loss, and may allow some people to create a more focused and rewarding work schedule.

In a traditional income system, an individual has a single job that generates most or all of his or her income. While this job may have the advantage of stability and a clear focus, it can also be subject to some serious vulnerabilities. If a person works in an industry experiencing economic downturn, it may be more difficult to find or keep a job, and may make it harder to advance financially. Moreover, if a person with one full-time job loses his or her position, his income may drop to zero immediately, leaving him or her in serious financial danger.

One of the advantages of income diversification is that it helps safeguard against the possibility of job loss. If a person works two part-time jobs instead of a single full-time job, his or her income may drop by 50% if one job disappears, but will not dwindle to nothing. While losing any amount of income is far from ideal, a person who has diversified income between two sources may stand a better chance of financial survival if job loss occurs.

Income diversification can stretch far beyond simply holding two jobs instead of one. Sources of income may include traditional jobs, but can also include freelance work, stocks or investment dividends, and Internet income. Freelance work might include writing magazine or newspaper articles periodically, and can be a good, if variable, resource for income diversification. Dividends received from stocks, bonds, and real estate investment can potentially generate income with little effort beyond making the initial investment and overseeing an investment portfolio.

Many people turn to the Internet for income diversification opportunities. These can include businesses operated online, such as greeting card services, specialty craft storefronts, or even building and maintaining informational websites that create income through advertisements. The Internet can also be a good option for diversification in that participants can often work on their own schedules from the comfort of their homes. Like investment income, some Internet income allows money to be earned passively; the individual may not need to work on a daily or regular basis to generate earnings.

Some financial experts caution that income diversification is a tool best applied when at least one stable job already exists. Having one steady paycheck can allow an individual to use remaining free time to pursuits that may be more personally rewarding, but cannot yet supply a steady income stream. Using a combination of traditional jobs, investments, freelance, or online opportunities can help people pursue risky career dreams without compromising a steady job, and may help increase monthly earnings while providing protection from possible job loss.