This post is by our regular Wednesday contributor, Erin.
Let me ask you one simple question.
If you got laid off, or your company went under, or you just decided you’ve had enough with your job, how would you survive the next few weeks (or months)?
Do you have an emergency fund you can pull savings from? A “Plan B” that involves moving back in with your parents? Or do you have other sources of income you can rely on in the meantime?
Most people don’t think about the first two situations very often. No one likes to think about being unemployed. After all, our generation has been dealing with a tough job market ever since we graduated from college. We’re happy when we can get any job.
Unfortunately, if you’re relying on your day job as your only source of income, you’re leaving yourself vulnerable. Here’s why you need more than one source of income, and a few ways to create it.
What if You Lose Your Job?
Let’s start with the most obvious – a job loss.
Chances are, if you’re like most people, you rely on your day job for the bulk of your income. You get a steady paycheck throughout the month, and you use that money for everything from living expenses, to debt, to savings.
But what happens when that source of income disappears?
You might think your job is stable, but a job loss can happen to anyone at anytime for any number of reasons.
I’ll give you a personal example. My dad was 60 when he lost his job a few years ago. So close to retirement, yet his company didn’t care. They fired him right before Christmas, with no notice.
Sure, he got a severance package. But he never recovered. I’m not going to make excuses – there were plenty of mistakes he made, like not keeping his skills up-to-date, but no one was willing to hire him.
Thankfully, my parents were able to retire (well, they were kind of forced into it) years later, and are working their way out of debt. Those years of unemployment were brutal, though.
Another example? My fiance has been working in his current department for just over a year. His company isn’t really known for firing people – they tend to “demote” employees instead.
However, two people have been let go in that time frame, and there are only 5 people in their department. Each time, the employee wasn’t performing well, but who knows if they knew it was coming or not.
The point is, you need to be prepared, no matter how awesome of an employee you think you are, or how much your manager likes you. Depending on the hierarchy, your boss may not be able to save you when your employer is looking to cut costs or restructure your department.
What if You Want to Try Something New?
Whether it be a new position, a new industry, or self-employment, having savings or multiple sources of income allows you the freedom to experiment.
Think about it – if you’re solely relying on the income from your day job, you’re kind of stuck there, aren’t you?
But if you have a steady side hustle, you might just have enough money coming in to break even every month. At the very least, you’ll be able to leave more of your savings untouched.
There are so many people I know who hate the job they’re in, but can’t quit because they have no other alternative.
As someone who has quit a job with money saved, I still would have appreciated the extra layer of security that having multiple sources of income provides. I hated having money going out, and none coming in. Speaking of which…
There’s Less Pressure When You Have Multiple Income Sources
Are you already in debt? Or do you have a decent amount of savings to life off of?
The rule of thumb for emergency funds is to have 3 to 6 months of living expenses in them, just in case it takes that long to find a job. And it might, depending on the level of experience you have and what industry you work in.
It’s not fun to be under pressure when looking for a job. When I graduated college, I was in a rush to find a job because of the financial situation my parents were in.
While I was also inexperienced with full-time work in general, I didn’t take the time to really think about whether or not a company was a good fit for me.
As a result, I ended up in a horrible work environment doing a job that didn’t fit the description of what I applied for.
Taking the first thing that comes your way is a huge mistake, but when we have no other choice, it’s hard to walk away.
Plus, the last thing you want to do is go into debt because you lose your job. It’s so easy to rely on credit for your basic living expenses when you’re under pressure to pay the bills, but it’s going to cost you later on.
Yes, it’s better than starving or having your electric shut down, but it can be avoided with simple preparation.
More Income Means Achieving Financial Goals Faster
We’ve talked before about how earning more can be more beneficial than cutting back.
Even if your job situation is as stable as can be, and you don’t plan on leaving, having another source of income can help accelerate your financial goals.
Really, who can’t use more money? Just earning an extra $100 a week would be nice, wouldn’t it? That’s an extra $400 per month that could go toward your student loans, retirement savings, or that vacation you’ve been wanting to take.
Being able to achieve your financial goals quicker is pretty valuable, and there’s no denying that having more than one source of income makes financial independence more of a reality.
How to Create Multiple Sources of Income
Ever since becoming self-employed, I’ve been a huge fan of diversifying my income and the type of work I do. If I ever return to the “9 to 5,” you can bet I’ll be keeping some of my freelance gigs. I would feel way too vulnerable without them.
Need ideas on how to go about creating multiple sources of income? There are plenty, depending on how much of a commitment and how much extra income you’re looking for. Here’s a few ideas:
- Invest in real estate and become a landlord
- Rent out a room in your home/apartment
- Invest in dividend stocks
- Start a side business
- Create a niche website
- Create web-based products (ebooks, courses, etc.)
_______________________
No matter what situation you find yourself in, having another source of income to rely upon is a good way to secure your finances. If something ever happens and a source of income dries up, you’ll know you have others to fall back on. Having that peace of mind is worth it.
Do you have multiple sources of income, or just one? Is creating another source of income a goal of yours? Have you found that having other income sources gives you more peace of mind? Are there any benefits I missed?
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I’m on board with having more than one source of income, but I definitely want to make my “extra” income as passive as possible. I don’t want to end up pushing myself to always earn more, more, more and never enjoy the life I have. Having said that, it’s nice to have the security blanket. My blog doesn’t earn much, but I also know it could earn more if I really needed it to. It also helps to l
This post is so great for anyone who is just getting started in their money journey. Relying on one source of income is risky, in my opinion. The more income, the less risk. If (when) an emergency happens, you will have multiple sources of income even if one is no longer there for some reason.
Just recently experiencing a job loss I understand the importance of an e-fund, it helped reduce the stress of the situation 10x. Although I was working on my plan b, it wasn’t fully ready to support my main income. When you work for someone else you need to understand that it’s not guaranteed.
Great post Erin! I am happy to say that I officially have two streams of income – my freelance work AND my blog. Although I’m making a trivial amount off my blog right now (I just passed the $100 minimum payout threshold from Adsense last week), it feels amazing to finally be at that point and I’m excited to see where I can take my blog income.
As a freelancer, it is crucial for me to have more than one income stream! I like having 7 or 8 different sources. It helps me sleep at night!
We’re all about having multiple streams of income. As a business, it helps us stay ahead of others as we can offer different services that other bigger companies might not be willing to do. There are always going to be ebbs and flows and having more than one stream of income can help protect against total pullback.
If you are unfortunate enough to find yourself no longer able to physically work in your chosen position, developing a skill set that will allow for a complete career change is a must. The passive income route as a second career is a great backup allowing you to hire out what you can’t physically do. Early on in my career I found I was unable to physically tolerate exposure to tobacco smoke. At that time, smoking was allowed in all offices, restaurants, etc. I was blindsided; who ever thought? It virtually removed me from most positions I had schooling for. As luck would have it, I had purchased a duplex while working and saved a small sum. When I had to leave my career, I made a down payment on another duplex doing any maintenance I could myself. If a physical setback of another sort should happen, I can hire.
This is definitely an area I need to work on. Currently I just have my day job. Maybe one day if I accept a 9-5, I’ll try to get into real estate or another side hustle to increase my income streams.
I agree that it is important to establish multiple sources of income, but I would be hesitant to group dividend stocks and real estate into the “multiple streams” bucket. Those are investments, and living off of investment income because you are in an emergency state is not a good plan. Cash flow from investments ebbs and flows more than the cash flow from a day job.
I’m not saying don’t live off of investment income or passive income. Instead, I’m saying don’t depend on investment income streams as part of your emergency plan. People who live on investment income long term usually build in a nice cash buffer to deal with the ebbs of investment income.
I have several streams, which is really nice because you never know when one will dry up. I think I will be losing one of my contract optometry positions later this year. It sucks because I like the job, but it won’t be financial ruin. Even if you have a secure job, the side income does allow you to meet goals faster. I don’t think I’d ever go back to relying on one job, even if it was awesome.
indebtedmom I definitely see where you’re coming from with that. I’d like to have a mix, mostly because passive income can sometimes have more of a chance of drying up (since it’s not in your control as much, especially when it comes to real estate or stocks). But on the other hand, I don’t want to have to work all the time, either!
Deanie Good points, and glad you recovered from that!
Financegirl Exactly. I had never thought about it before I started blogging, even after seeing a few family members lose their jobs. I’m so glad I was introduced to the concept of side hustling.
DebtDiscipline I’m sorry you’re going through that, Brian. I know it’s hard. Plan B’s are always good to have in any capacity!
Christina@EmbracingSimple Hey, that’s better than nothing (with Adsense)! I’m sure your blog will continue to grow.
Holly at ClubThrifty Definitely agree with you there!
FrugalRules Agreed, John. I have different services I offer different clients as well. I just like to diversify all around!
ferventfinance As long as you at least have an emergency fund! I couldn’t imagine being without one and not having any income coming in.
Hannah UnplannedFinance That’s a good way of putting it, Hannah. I would say it’s better to get into the investing game before an emergency comes up, of course, so that your investment income is a bit more stable (hopefully). They’re good parts to include in your whole plan, which should be a balanced one. I was coming at this from more of a “how to prepare” perspective.
Eyesonthedollar I’m sorry to hear that, Kim. I don’t see myself going back to one source of income either, no matter how much I love the job. It can always disappear.
I think more and more people are recognizing the advantages of having multiple sources of income, thanks to the Great Recession. It was a real wake-up call to many good workers who lost jobs not because of poor performance but due to restructuring and cost-savings. They never considered themselves to be vulnerable and they were. We do have multiple streams of income and a fully-funded emergency fund, which has helped my family weather the ups and down life has brought us, including job loss.
ShannonRyan I definitely agree that it’s become more prevalent since the recession. It was quite a shock to see so many people I knew lose their job. After being in the workforce and seeing coworkers fired for the tiniest things, I’m a little too paranoid to rely on one source of income!
I remember seeing a number of my co-workers get laid off in 2008 and many of them had only worked for the one company. They had mortgages to pay, colleges to pay and families to support and they were scared out of their minds for what they would do next. After watching that happen, I vowed that I wouldn’t suffer the same fate. It’s one of the main reasons I started my own company. I tell people now that instead of one boss (i.e. one company), I have hundreds of bosses and it makes me feel more secure about my longterm prospects.
blonde_finance Yes, exactly! Especially because when you’re the boss, you have more control and you know what’s going on in your business. Unfortunately, so many managers were lying to their employees about what was going on behind-the-scenes. You never really know what’s happening in upper management unless you’re in such a position. Not good!
Getting laid off is the worst! Luckily it happened to me when I was 25 and not 60! I can’t even imagine.
Mark@BareBudgetGuy It was stressful to say the least. Getting laid off is such a blow to your ego, and it’s not good when you still planned on working a few more years until you were ready for retirement.
I currently have 4 sources including my main job. The other three fluctuates a lot. I plan on making more money consistently with one. I also plan on trying to get a 5th income stream very soon.
Our income is technically a little diversified (2 rentals, working on a 3rd, plus Mrs. Done by Forty’s stipend). But we’re top heavy: the lion’s share comes from one paycheck, and losing that one source would be a huge change for us.
I don’t exactly know what to do about it because, well, I don’t have a huge desire to drastically increase the other sources (or increase their numbers). I know it’s technically better if we do so, but our savings rate is ‘good enough’ so I don’t really want to hustle that bad for incremental gains/diversification of income…you know?
Jason @ The Butler Journal Nice! Even if they’re not completely consistent, you’re in much better shape than someone who has none. At least you know there’s potential for growth!
DonebyForty Yes, that makes total sense! I hear you on the savings rate, too. I always figured I lived lean enough (and had enough saved up) that I could handle things even without my main source of income. However, after leaving my job last year and having a tough time with freelancing, I realized not having a job was more of a mental drain than a money one. I like knowing I have control and can call on another source of income and increase it when I need to.
But if your job prospects are great and you’re confident you can replace your income quickly, there’s an argument to be made that working on other side hustles isn’t as worthwhile. Or at least, having smaller streams of income is okay. Whatever makes you sleep better at night!
It took me a while to realize the benefits of supplemental income streams. The pasts few years I’ve been picking up a lot of contract and freelance work and I’ve realized how beneficial it is whether it’s for savings, paying down debt or even a family vacation fund. The peace of mind of having alternative sources of income is priceless.
I’m with you on the peace of mind that multiple income streams bring. I see our frugality as serving this purpose too–we live so far below our means that a job loss would just be sort of inconvenient, but by no means a crisis. It’s really liberating when you know you have enough saved up to weather that kind of challenge!
Financial Tour Guide Awesome! I used to come from a place of “money is limited,” and it really killed me when it came to paying down my student loans. I never felt like I was making enough progress. Having extra income makes it much more possible.
Mrs. Frugalwoods Yes, love that viewpoint as well! Living frugally means making temporary adjustments is pretty painless. When we relocated and I wasn’t making anything, one income was basically enough to cover our bare bones budget.
My job means I don’t actually have time/energy for a side hustle (chronic fatigue is a b-word). But I’ve already done the math and figured out that if it came down to it, I could make enough money to get by if I freelanced blog posts. I’d be stressed and freaked out the whole time, but it’d keep us going.
Luckily, my company is doing well and has very few employees. I’m literally the only person answering customers during the day. That said, if things went badly the owner could always take over my shift himself. So yeah, no job is completely without risk.
AbigailP That’s a really valid point, and I totally understand that piling more work on top of your day job isn’t for everyone. Before I started freelancing, I relied only on my day job because I was too drained to focus on other things by the time I got home. I think I’m used to it now, but it’s not easy, especially with chronic fatigue. Having a network to fall back on, or having a Plan B, is still very valuable.
I’m definitely one of those people that has always (incorrectly) assumed I’d never lose my job. I’m slightly more prepared if it ever happened now thought, with an emergency fund (although smaller than it probably should be), and a stock portfolio that could be liquidated in an absolute dire situation.
But one of my big goals now is definitely to diversify my income. I have a small amount from dividends, but I really want to create another source from a business / side-hustle etc. Although my reasons for this are more ‘positive’ – wanting to generate greater income to invest more, and to eventually reduce the hours I work at my day job.
Jason@Islands of Investing While I was writing this post I kept realizing how developing more than one source of income is also the best way to accelerate financial independence. Having more money to invest is always nice!
We have an emergency fund, but have have been talking lately about needing to have multiple sources of income. You really can’t rely on your job anymore.
houseoftre It’s a sad reality of the past few years. You have to look out for yourself – not your employer.
My dad is in a similar situation as we speak, things have not been going well for him at work (but I do think he has himself to blame) and seems likely he will get let go. Mr. Budgets and I both see how our parents are and we totally want to be on the other end of the spectrum when it comes to how they handle money. It motivates us to save and invest even more.
mrandmrsbudgets It’s so hard to watch our parents go through tough times. I had the same experience – my parents were in debt, didn’t manage things well, and I’m the total opposite because of it.
I totally agree – diversifying your income is a great thing! Not only will you be covered in case something happens, but it can also help you achieve other financial goals much faster. It can be hard to find the time to do so, though.
LisaVsTheLoans Yes, time is always the challenge! That’s why I’d love to get more into passive income streams in a few years. It requires an up-front time commitment, of course, but ongoing, not as much.