What is diversified income, and how is this useful in motherhood? Let me explain myself! When I first became interested in investing, I learned that in order to reduce your risk of losing loads of money at once, you can diversify your portfolio. What that means is this:
Don’t put all your eggs in one basket.
I guess literally, that’s because if you trip and fall you risk breaking all of your eggs and having none. So you spread your eggs into different baskets, to spread the risk. You’d have to be having a really shi**y day to drop them all, right?
Ok this makes sense to me. If all your eggs are in the one investment basket, then you would appear to be at higher risk of being impacted in any sort of financial event.
How does this apply to your income?
This got me thinking about how this applies to your income.
I’ve lost my job in company restructuring twice in the last decade. That has made me a little nervous about having all my income eggs in one basket.
I guess you can mitigate this concern by taking out income protection insurance, or saving up say – 6 months of expenses in the case of a financial event.
But income protection insurance doesn’t protect you in the event of motherhood.
Income protection insurance doesn't protect you in the event of motherhood. Diversified income streams might...
Who is going to pay out income protection insurance when you say:
I’m just bloody buggered and need a break? I CO-SLEEP AND CAN’T EVEN GO TO THE TOILET BY MYSELF. I NEED ME TIME.
And who has 6 months of expenses saved up when you’re a recovering spendaholic with major money issues, a love of organic food, fine wine and travel?
(It’s ok, it’s safe to admit it, I know you don’t have 6 months of expenses saved up either, or you probably wouldn’t be reading my blog hehe).
OR MAYBE IT’S JUST ME. Ok anyway.
But even if you did, how would THIS conversation go down with your partner:
“Babe, I’m tired, and I want to quit my job. We can use our savings to cover the loss of income.”
Yeah, no-one has that conversation. Because once you have savings, you usually have financial goals to go along with said savings. And it’s incredibly hard to stop that train – even temporarily.
Even when you’re losing your mind.
I have another solution: diversified income
So this is where where diversification of your income comes into it – but I think you already knew that was coming.
If all of your income comes from a job, then you would appear to be at a higher risk of being impacted, in the case of any event that made it difficult or impossible for you to continue working. For many reasons this could happen:
- Sick parents who need increased care.
- Post natal depression.
- Having a baby with higher or special needs.
- Just being bloody tired all the time.
- Marital issues.
Remember we’re not just talking about the big things like getting laid off. We’re talking about life stuff, that when faced with financial difficulties we tend to soldier on because quitting is just not an option.
SURE, if you have enough savings you technically have a “FU fund” and can walk away from any situation you please. But who does that…? Instead, we think of the all the money we would miss out on.
What if you had diversified income already?
But what if you had other sources of income that could tide you over somewhat, if you left your job (or removed any source of income, for that matter)?
Would that change the outcome of your decision to stay in your job, or leave earlier?
Would having diversified income mean that you could make decisions based on your needs, rather than your finances?
Protect yourself with diversified income: don't put all your income eggs in one basket.
When I did the numbers for quitting my own job, I quickly identified that once we removed my income from the picture, we were a little short each month. We couldn’t afford to live on one income alone – and still reach our financial goals.
But I did some creative budgeting and worked out that we would be ok for 6 months – and after that period of time, I’d need to be generating some income to at least cover that shortfall.
My side hustles will cover this shortfall.
Here’s the truth though: I would have quit my job earlier if I had those side hustles set up and earning, before then.