We’ve all heard the saying, “Don’t put all your eggs in one basket.” My great-grandparents had an egg business in the 1940s, and they knew this for certain. All the eggs the chickens lay in a day = that day’s potential income. So if you trip and fall on your way back from the chicken coop, you’ve lost all of your income for the day. You won’t make that mistake twice!
Most of us don’t think about this in relation to our jobs, but it holds true. If you only have one income stream (a job), what happens if there are layoffs? Or outsourcing? Or if something really crazy happens, like the building falls down in an earthquake?
Great-grandma made sure to safeguard her income, and you should too. This means having multiple, diverse income streams. If one of the income streams slows or stops, you have other ways of making money to get you through.
There are two main ways to diversify your income: active and passive.
Active Income
Active income is probably what comes to mind first. It’s called “active” because it involves active use of your time in exchange for payment. In my favorite personal finance book, Your Money or Your Life, the authors say you’re “trading your life energy for money.” Your job is an example of active income.
There are many ways to diversify or add an active income stream. You could get a second/part-time job, sell items on eBay, Amazon, or Etsy, or drive for Uber or Lyft.
You can earn a little extra money by doing web searches on Swagbucks, selling crafts on Etsy, completing tasks on Amazon Mechanical Turk, or doing freelance jobs on Fiverr. These tasks won’t create a lot of income, but they’ll put a few bucks in your pocket while you’re sitting on the couch watching TV. Multitasking!
Passive Income
Passive income enables you to make money without the daily time exchange of active income. You must make an upfront investment of either time or money, but then you receive ongoing income with little or no time input.
Examples of passive income are renting out your house, building a team in a direct sales company, writing a book or ebook and selling it on Amazon, making and selling music, developing an online course, or starting a blog.
Why is passive income beneficial? In an ideal situation, you have multiple passive income streams that add together. That means you’re earning money while you sleep, while you’re on vacation, while you’re curled up on the couch with the sniffles.
Contrast this to active income, where you only have 24 hours in a day—and in a traditional job, there’s probably a cap on how much you can earn.
There’s No “Right Way”
Some people will say you should strive for 75% passive income, or 50% passive and 50% active. There’s no magic number or right way to diversify your income.
If you love spending time on your active income, keep it up! If you’d rather sit back and watch your blog income and book royalties pile up, that’s great too.
Multiple income streams ensure that you don’t have all your eggs in one basket.
Joanna @way2gomom says
Great points! I’ve been working lately on creating more passive income opportunities for myself, but finding that adding active income is easier because that’s what I already know. For me, I recently stepped away from some active income opportunities and now I’m at a point where I think I’d like to take some time to create some passive opportunities for myself before I increase my active options again.