Diversification of Income
Way back in my 20’s, I had a discussion with a successful entrepreneur that I’ll never forget. He said, “Caleb, do you have a spare tire in your car?” Of course, I said yes. “Great,” he said, “Do you have a spare income?”
I was confused. Seeing my confusion, he went on to say, “You mean to tell me you have a spare tire for your car, but you don’t have a spare income? Isn’t your income more important than a tire on your car? Why do you have a spare tire, but not a spare income? That doesn’t make any sense.”
At around the same time, I listened to an audio program (this is back in the 90’s) called Multiple Streams of Income by Robert Allen. In it, he explained that as of now, the 90’s, relying your entire financial life on one income was a stupid thing to do. Whether we liked it or not, whether we wanted to admit it or not, both the new economy of the 90’s and rapid technological change of this new era rendered the entire concept of one income as obsolete. One income was no longer enough to “carry” your financial security like it could pre-90’s.
Instead, you must create either a spare (second) income that replaces your first one in case you lose it (which you probably will eventually), or even better, create multiple streams of income from a diversified set of sources.
These two men were right, of course. More than even they knew at the time.
Part of the Alpha 2.0 business model is to have not one small business, but 2 – 4 small businesses in very different industries, serving very different markets. That way, if one business goes out of business, you’re upset, but you’re okay. Compare that to the guy who relies entirely on one business, or worse, one job, who loses his job/business. He’s now screwed. It happens all the time.
The good news is that each of these businesses don’t need to make a lot of money. As long as each one generates income every month, and that the total monthly income from all of your businesses (or investments) equals at least $6250 US, which is $75,000 a year, you’re fine.
I find it hilarious that today, everyone talks about diversifying your investments (which you should), but no one talks about diversifying your income. That’s insane. Your investments are very important, but I would argue your income is even more important… it’s not fun to make zero dollars a month when you have bills to pay and food to buy.
I have three sources of business income; my consulting business, my Blackdragon / Alpha 2.0 business, and my IT marketing company. All three companies are in completely different industries serving completely different market niches. That’s by design. If any one of these businesses fail, I’ll be a little upset, but I’ll be okay; my financial life will continue and my bills will still be paid (and then I’d start a new business to replace the one that died, which would be sort of fun).
I also sometimes have blackjack income, but I don’t really include that towards my overall income. I also have investment income, but I don’t include that either, since 100% of that income goes back into my investments to build my net worth.
That’s a total of five income sources. Not bad. You don’t need to go that crazy of course. If you have two businesses in very different industries, both spinning off money, that may be plenty for you.
Just like you should never rely on one woman to satisfy you sexually, you should never rely on just one source of income to pay your bills and build your wealth. Your grandpa was able to do these things; you and I don’t have that luxury.