Why You Should Diversify Your Income

Long gone are the days when all you needed was a stable job and maybe a piece of ancestral land at the village to be deemed financially secure. In fact, the longer you stay at a job, the more successful people consider you. 

But things are no longer the same. In today’s unpredictable economy, protecting your income and achieving financial freedom needs much more than that. It requires you to have a more aggressive form of income diversification strategy.

To tell the truth, unless you have a few income generators and financial backups, your money is always at risk. It could go away any day. 

In this article, we discuss income diversification, why it’s essential, and why diversifying should be your top priority at the moment. 

Also read: 5 Strategies That Can Help You Develop More Revenue Streams

What Does Income Diversification Mean?

Like portfolio diversification in investing, income diversification is a way to establish multiple income lines from numerous independent sources. In both investing and income generation, diversification helps you hedge the risk of income loss. 

In other words, it’s an effective strategy to ensure that you do not lose your income in case one source of income - e.g., formal employment - is affected. 

Why Diversifying Your Income Is Important

As they say, ‘do not put all your eggs in one basket.’

There is always a chance you might lose your job tomorrow, or your business might go under. It can happen due to industry changes, a market downturn, or even something as simple as a spat with your boss for those in employment. Nothing in life that is too certain. 

Whatever the case, the impact of losing your single source of income can be devastating. 

One way to protect yourself is by diversifying your sources of income. Different industries and income sources are affected by market conditions differently. Having multiple sources from various industries cushions you against the risk and give your financial health a complementary balancing effect.

For example, if you lose your job, your finances will not receive a big blow if you have rentals bringing in money every month. 

Also read: Employed Full Time? Here are 7 Ways to Increase Your Income in 2022

Why You Need to Diversify Your Income Today

Due to the effect of COVID-19 on the economy, approximately 740,000 Kenyans had lost their jobs by the end of 2021. Out of this number, those who only relied on their employment salary for their livelihood must have had it rough.  

Now add the increasing cost of living to this equation, and even with a sizeable amount of savings, you are likely to be rendered destitute pretty quickly. 

So here is why you should strive to increase your sources of income: 

Rising Cost of Living

How has the rising cost of living affected you individually? Have you had to rethink how often you will use your car to the office? Or have you had to cancel a few weekend meetups with the ‘big boys?’

No matter your level of income, everyone in Kenya has felt the impact of the increase in the cost of living in the last few months. The cost of most basic things have have skyrocketed. 

However, some people have obviously felt it worse than others. Those with higher income - and from different sources - have breathing room as the doubling and tripling of prices do not hit too much where it hurts. 

Diversifying your income is an excellent way to ensure you have a more stable, sustainable income even in unpredictable economic times. 

Also read: Everything That Has Become Expensive in Kenya Since Ukraine-Russia War. 

Protect Yourself From Economic Downturns

We can blame the government all we want. But the truth of the matter is that the future outlook of any economy is uncertain. For example, who would have predicted that the effect of the conflict between Russia and Ukraine, happening thousands of miles from Kenya, would affect how much cooking oil you would use when making your dinner? 

If you were relying on only one source of income, you must have felt these effects deep into your pockets. 

Employment Security 

No job is too secure. No matter how long you've been with your employer or where you are in your career, you can never be too comfortable. For example, although it was a while before the first COVID-19 case was announced in the country, no one could have predicted the pandemic's impact on job security. 

Even without the pandemic to worry about, people lose jobs all the time. Companies go bankrupt, businesses close down, and people can be rendered redundant. 

So it is crucial always to have a fallback plan. Another source of income - or a couple - could be the difference between a healthy financial life and a financial downfall. 

Also read: How to Mentally Recover After a Financial Setback

Take Control of Your Income 

People who are in the driver's seat of their finances know not to rely on a single source of income. For example, they fully understand that you don’t have complete control of your income in employment because, for instance, every pay increase is controlled by other people or other factors. 

So if you want to have complete power over your finances, you can’t rely on one single source. It doesn’t matter if this source is your million-dollar company or minimum wage employment. It is always important to diversify. If someone knocks off the basket that holds all your eggs, they will all break and leave you starving. 

Also read: More Money, More Expenses: How To Deal With Lifestyle Inflation.

To Achieve Your Financial Goals Faster

Let’s do some math. This is where you bring out your calculator.

Kamau has 2 cows. Each cow gives Kamau 10 liters of milk that he sells to X diaries for Ksh20,000 a month. Now let's assume that (all other factors constant) Kamau can’t increase his milk production and sell more at the moment. He has to wait a few years until his cows are bred, and the baby cows (if female) grow to produce milk. 

However, Kamau needs to increase his income now to Ksh50,000 per month to cover his family's daily needs. 

So instead of him sitting and waiting, Kamau decides to start a small vegetable farm, add a few chickens and pigs that he then sells monthly to supplement his income. This works, and soon, Kamau can finance his family, and he even has a little left to save.  

See, diversifying gives you a higher income and helps you get to the end goal faster. 

WRAPPING UP

Life is unpredictable. And sometimes things can go very wrong even when you are most prepared. However, as they say ‘the best preparation for the future is the present well seen to, and the last duty done.’

The best preparation for tomorrow is doing your best today. Hence as a professional, it is crucial to have a few baskets to ensure that in case one is knocked down, you still have eggs for tomorrow morning's breakfast. 

So, do not rely on one source of income. Start diversifying today and build a great financial future.