Multiples sources of income: diversification in action!

What does diversifying your income mean?
If you read investment and personal finance books, some authors suggest that you consider diversifying your sources of income. This means that your job or business should not be the only form of income that you have.

Diversification can come in many forms. For most of us, if you are married and both spouses work, there is some degree of diversification as the family budget is supported by two sources of earned income from different jobs. If you are single, and living by yourself, then you may have earned income from your job or business as well as passive income from savings, fixed deposits, treasury bills or dividends from holding stocks and shares or yields from bonds.

On an individual basis, diversification means to have more than your job as your only source of income.

Why do you need to diversify
Diversification is a risk management strategy. During our parents' time, during the 1970s to 1990s (subject to blip in 1985-86 recession), with full-employment and Singapore Inc growing as one of the four Asian tigers, jobs were relatively plentiful and life-long employment was realistic. CPF contribution rates were high and people could stay in the same organisation until they retired.

Today's globalised market place has forced companies to rely on workers from the region and beyond. The changing nature of the economy meant that skills and expertise relevant previously may not be relevant for today's market. The compact between organisations and workers also unravelled as increasingly the balance of power shifted to the employers with the Asian crisis and dot.com burst resulting in organisations restructuring, retrenching and remaking themselves, usually at the expense of headcount cuts and downsizing.

Job security went the way of the dinosaur as employers were free to hire from overseas and fire locals in the name of profitability and making more money.

Hence, diversifying your sources of income is one of the ways to mitigate the risks of your job disappearing into the annals of history. By all means keep up your skills and expertise to what is relevant to today and tomorrow's market. Network, network and network and keep your ears peeled to the ground. But recognise that despite your best efforts, no one is irreplaceable and no job is secure forever.

How do we diversify?
The easiest way to diversify is to practice the most fundamental approach in financial freedom: to save and invest!

When you invest, your investment monies becomes your workers, day-in-day out even as you are at your workplace earning your income, your investments make 1.68% if employed in Maybank iSavvy savings or up to 2%+ in treasury bills and possibly to 5%-100% in equities (with a risk of also losing 5% to 100 or even 200%!). Depending on what is the risk-return profile of your investments, these make up another passive income source that is independent of what you do in your job so long as you live within your means and have savings to invest.

The other way to diversify that I am exploring and is earning me interesting returns is my AdSense revenue. I have managed to earn another USD 100 for the past 3+ months from this blog. It's small change but when converted to SGD is around $140. Now if I were to get a return of $140 / 3 mths or $560 per year, I would have to invest an equivalent of $28,000 into treasury bills at 2% for one whole year before I can get $560 a year or $140 every 3 months.

Wow... it will take me some time to manage to save up $28,000 not counting the amount of time I would have to spend working to get that amount of money!

Question your assumptions
Some of you may think, hey, I get get $140 a month or even $200-$300 giving tuition or doing some overtime. Yes, you can. But you need to trade time to earn that amount of money. In addition, you would have to be actively working to get that amount.

For me, AdSense does not bring in a lot but it develops my writing skills and is already something I would do even if I didn't earn a single cent. Just look at my other blogs that were set up mainly for me to write about my various interests in public speaking, my reflections of my national service experience.

The reason I started AdSense was to try something new. To train myself to become a better writer by writing articles that help articulate my thoughts about financial freedom and at the same time share a bit of my interest in this journey that I have undertaken to be financially free!

Job insecurity is a real threat in our journey to financial freedom. If you are serious about achieving your goals in reaching financial freedom, free your mind to think about what ways you can diversify your income sources. You will never know how thinking about this possibility would open up potential ideas towards having multiples sources of income.

Have a good week ahead and remember to be well and prosper!