• Baylee

Why You Should Diversify Your Income- Even if You Don't Want a Side Hustle

One of the first lessons investors learn when they jump into the stock market is to diversify, diversify, diversify.

First, what does it mean- exactly- to diversify?

“Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.” -Fidelity Investments

Photo by SWAG Style on Unsplash

The primary reason that investors diversify their income is to mitigate loss. Take these two portfolio's as an example:

Sally's portfolio:

100%: Microsoft

Billy's portfolio:

20% Microsoft

20% Starbucks

20% Adobe

20% Exxon Mobile

20% Home Depot

Now, let’s say that there’s a huge scandal at Microsoft. Bill Gates is a fraudster, there’s been billions of dollars of accounting fraud over the last few decades, and Microsoft- like some other big companies over the last few decades- comes to a screeching halt. The stock quickly falls to zero.

In the case of the two investors above, Sally would lose 100% of her portfolio. Billy, on the other hand, will have lost only 20% of his portfolio. Not because he chose better companies or had some inside knowledge, but simply because he diversified his portfolio.

Your income

Most new investors grasp this concept easily. Yet when it comes to our careers we’re given completely different advice. From a young age, we’re encouraged to SPECIALIZE. Specialize in one thing and forget everything else!

Don’t get me wrong, specialization is definitely not a bad thing. People whose careers require intense, specific knowledge should absolutely specialize. Doctors and lawyers are obviously the first positions to come to mind- and they’re compensated heavily for their specialties.

But the rest of us would benefit greatly if we focused just as much on diversifying our income as we did on increasing it.

Photo by Szilvia Basso on Unsplash

Why? Income diversification gives us:

  • More income resilience

  • More career resilience

  • More opportunity to explore and build other skills

  • More opportunity to utilize and merge skills that we already have

  • More opportunity (for income, connections, new endeavors, and even new jobs)

Just like the portfolio example, consider the difference between the following two people’s incomes.

Now, just like in the portfolio example, let’s say a recession hits and both Kayla and Julie lose their jobs as their companies cut back on spending. Kayla has just lost 100% of her income, dropping from $60,000 a year to $0.00. Julie, on the other hand, has lost 75% of her income, but is still earning $20,000 per year.

As you can see, diversifying your income is not necessarily about increasing your income. Many people, even the non-doctors and non-lawyers, can make more money faster by aggressively pursuing a promotion at their current position or working long hours of overtime. Diversifying your income is about mitigating your potential LOSS of income. In the same vein, income diversification is not about saving your job, it’s about saving your career.

Unfortunately, this pandemic has shown what journalists in the early 2000’s and real estate agents in 2008 already knew: it’s not so hard for an entire industry to be dealt a huge blow. Companies can tumble at the faintest gust of trouble on the wind and you can be asked to pack up TODAY.

How do you start?

Does this sound like something you want to pursue? If your primary goal is diversification and not an immediate higher income, then start with the skills you already have or the projects you’ve been dying to work on. Some examples might include: opening an Etsy store, providing digital services for small businesses (advertising, writing, social media, etc), auto repair, freelance consulting, personal training, etc. You probably already know what gigs stand out to you! The idea isn’t to find your next “career” or worse- your get rich quick scheme- but to foster and grow the passions and skills that you know are already within you. And put yourself in a better position in the meantime.

Check out this flowchart to see where your priorities lie!

Here are real-life examples of people I know who’ve successfully diversified their income:

  1. A ballet teacher who makes and sells custom dancewear on the side.

  2. A barista who runs a corporate event planning service

  3. A real estate agent who owns and manages a pizza shop remotely

  4. A retail manager who teaches pilates

  5. A customer service rep who does freelance writing on the side

Have you successfully diversified your income? What were the biggest benefits? Let me know in the comments!


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Hi! I'm Baylee :)

I've spent the last two years paying off debt, building savings, and learning everything I could about personal finance. 

Now, I want to share everything I can with you.

I'm a big believer that most people know the "right" thing to do, they just need someone reminding them that it really can be done.

Take a look around and let me know what you think!

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