Got a job?
Let’s address the issue of single-sourced income that many of us start with. That’s right – the dreaded Jay-Oh-Bee, job. The majority of us start off being told to “get a job” in the academic system and are groomed towards this from an early age.
No matter how you feel about your job, having a job is the fastest way to get a SHORT-TERM income stream. You trade your time (aka life) for money.
I’ve said this many times elsewhere, but it’s worth repeating here: if you love your job, by all means, please keep that job and be happy. You’re one of the lucky ones; well done!
Now, if you hate your job, you may not like what I’m about to say: stay in your job, for now at least. I’m not here to sell you the “quit your job now because this gimmick will make you rich overnight using none of your own money” marketing pitch. Keep the job for now, but work on other things to replace and surpass that employment income instead.
So, why get a job in the first place? The majority of us have been groomed through the academic system, reinforced by our parents & grandparents (who were also groomed in the same system), and probably shamed or ridiculed for thinking “outside the box” or challenging the norms.
It’s just “the thing” to do. Grow up, get schooled, get a job, work till you retire, and pray your pension pot is enough to sustain the lifestyle you’ve gotten accustomed to.
You could lose your job for any number of reasons, but one reason is simply the
business or economic cycle that comes around periodically. It’s known by that dreaded R-word. That’s right.
Imagine for one minute that you lose your job during a recession. You’re 45. A significant recession is underway. Businesses are not hiring. You’ve got a mortgage, bills to pay, maybe kids to raise, and other costs on top of that.
Your income is 100% linked to your job. That one single source of income can disappear at any time, *poof* into thin air. A job demonstrates the issue with single-sourced income.
So far, I’ve used a job as an analogy because, in reality, this applies equally to anyone who is 100% reliant on one single source of income. As an example, you have one rental property, which brings in 100% of your income. Or perhaps you run a business that is reliant on one platform, and that platform goes into bankruptcy within a week. I’d respectfully suggest that this puts you in the “high-risk” zone, similar to having a job.
Now that you know the risks of single-sourced income, what’s the solution? The answer, in my opinion, is:
Diversify so that your income streams can handle any weather that the economic climate throws at you.
Recession or bad economic climate? No problem – you’ve got investments that flourish during these challenging times. Bull markets and a strong economy where everything is going up? Perfect – you’re invested in assets that benefit significantly in a roaring economy.
Here’s a caveat – I’m not a financial advisor. Nothing here is financial advice, so do your own due diligence as your capital might be at risk, and past performance is never indicative of future performance.
With that caveat out the way, anyone with a tiny bit of common sense should be able to understand that putting all your eggs in one basket is dangerous. And yet, that’s EXACTLY what the majority of us do! Our eggs are all in that one basket, be it a job, or single-sourced income from one rental property, reliant on one bank for bank interest income, and so on.
Side note: I used to believe that rental property investing was the ONLY form of investment that I needed in my life. I was practically married to this concept until one day; I wasn’t married to that concept anymore. What changed? Well, it took about two weeks or so for me to change my mind. This was way back, just before the 2008/2009 Great Financial Crash. I had invested in a rental property, and about two weeks later, banks globally shut down all lending, and a significant recession followed soon after. At the time, it was a massive hit on my ego and a substantial impact on my bank account. Oh my, did I make a whole lot of mistakes after that. I discuss it in my book UK Property Investing for Complete Beginners.
To get your mindset straight, let me introduce you to:
Fear not; this isn’t a horror flick.
Diversify Like THE CHAIR
I relate diversification to a 4-legged chair. Each leg represents an income stream that supports your lifestyle or goals.
What’s the minimum number of legs a chair needs to support you sitting on it right now?
- 4 legs: The chair will support you, no problem at all.
- 3 legs: The chair will struggle a little, but with some balancing, you’ll sit on it fine.
- 2 legs: We’re pretty far from supporting you unless you can balance REALLY well.
- 1 leg: No hope in hell. You’re going to need to get a job or two.
The more legs you have on that chair, the more likely you can support yourself if and when any individual legs crumble.
Before you diversify your income streams, you need to do your research before committing time and capital to any new business or investment. You’ll need to branch out of your comfort zone to learn new things, test new skills out, try different strategies, and see what works for you.
Take diversification as far and wide as you choose. I’ll give you some examples of diversifying within the real estate universe and beyond. You can then take these ideas, do your due diligence, and see what works for you.
Naturally, I’ll also share what direction I decided to pursue – if you can’t wait till the end of this blog, browse my YouTube channel here – it’s pretty obvious. 😉
Real Estate Investing Diversification
If you’re already investing in real estate, depending on the strategy you’ve adopted, you may want to branch out and try other things within the real estate investing universe. Diversify into different systems, test various locations, different tenant types, or selling real estate to different buyers or investors; there are many ways to approach this.
For example, if you’re into rental properties for long-term investing, it’s not a giant leap to add some value to your properties by upgrading, say, a very dated kitchen. You’ll need to be strategic about what you upgrade to add value to a property. Once you’ve upgraded the property somehow, hopefully, you can release some equity based on the improved property and simply repeat this process in the future.
The point of diversifying within the real estate universe is to broaden your skillset and weather potential economic adversity that can hit.
If and when a recession hits, you might need to be placed in the right location. Nothing has highlighted this more than the recent 2020 pandemic. Some popular global cities have been almost vacated overnight, and people have moved out of cities to greener, suburban locations. Real estate prices in some of these cities have slumped while suburban property prices have significantly increased.
This is one example of how using location to diversify will have helped your real estate portfolio weather the economic storm of a pandemic better than those who have concentrated their portfolio in one area that got hit hard. Who knows if these popular cities will bounce back to life and if they do, when? It’s anyone’s guess but diversifying will have placed you in a better position than a lack of diversification in this instance.
What happens if you want to try your hand at something beyond real estate?
Diversification Beyond Real Estate
Let’s address the issue of capital and time. Often, we have one or the other, seldom both. If you have both (lucky you), you’ll likely be picky about where you invest your time or capital – which brings you back to a limitation of time or money for specific projects you choose to pursue. For example, you can’t put in 8 hours of work on 50 different projects in the same day; at some point, you’ll have to decide what to pursue and what to delegate or let go.
Now that we’ve established that there’s likely going to be a time vs. capital trade-off, I want to highlight the fact that we can all start from where we are, with what we have. There are side hustles or businesses that require little-to-no capital investment (like starting a blog!); investments that need a little more capital; and investments that require a lot of money. Likewise, for time, some businesses or investments take up more time than others.
There’s a rung on the ladder for everyone to get on. You simply need to do your research, determine the capital and time that it requires, whether you’re interested in it or not, and dive in slowly.
It is probably against popular belief, but my suggestion is that you NEVER go “all in” until it’s a proven concept – a topic for another day, perhaps!
Here’s how this all fits in with diversification: You can select the type of business or investment that suits your level at this point in your life, balancing capital and time that you’re willing to commit. As you’re reading this, you must have internet access. Information on how to get started is at your fingertips; you simply need to start typing in “how to start….,” “business opportunities…” or something along those.
Do some research into the following:
- Business types
- Industries & Sectors
Note: succeeding in business is NOT easy over the long term. Only a third (33%) of companies survive long enough to see their 10-year anniversary, according to this article by Forbes here. Said another way, over two-thirds (67%) of businesses do not make it to the 10-year mark.
Although I’m a big fan of businesses and am constantly amazed at how companies in various industries, sectors, and locations succeed, I recognize that the chances of me starting a business that survives ten years is low. The probability of my business becoming the next Amazon is even lower! Not being negative, simply being realistic here.
Saying that just because the numbers are stacked against us in terms of having a successful long-term business (beyond ten years) doesn’t mean we can’t somehow benefit from businesses that DO very well.
Right about now, you might be confused. Andy is keen on business but is also saying most companies don’t survive in the long term.
Both are true!
What I’m saying is if you want to have a business, there are lots of opportunities. Go out and find something that interests you and pursue it, after you do your due diligence, of course.
However, if you’re like me and accept that running a business isn’t easy, yet you want to invest in great companies without running these companies directly, then I’m pleased to tell you that there is an alternative.
The alternative is to invest in already well-established businesses through the stock market.
I personally do this by purchasing shares in great companies or investing in a basket of companies through exchange-traded funds (ETFs) listed in stock markets globally.
Find out more here where I have shared and continue to share my ideas and some investments that I’ve made in the stock market so far. See you there – and make sure you drop a comment and say hi. I reply to all comments personally!
Don’t forget to follow my journey, rambles, and doodles at:
I look forward to seeing you there soon!
PS: If this interests you, please get my property checklist that you can download here.