Why You Should Diversify Your Income Now

What is "Diversified Income"?

As more and more people lean towards the entrepreneurial side of making money, the number of side-hustles one person can have is endless. And with these various streams of income comes the importance of understanding the benefits of diversified income.

Diversified Income is a multi-sector strategy that invests across a broad spectrum of credit market sectors including global corporate credit both investment grade and high yield, and emerging market debt.

Diversified income is great for entrepreneurs and freelancers, because you don't put all of your eggs in one basket. By diversifying your income, you minimize the risk of loss if one stream of income doesn't work out.

With diversified income, there are typically two general ways you can label your streams of making money: active and passive income.

Active vs. Passive Income

In short, Active income means you are doing something in order to receive that income. Passive income means you are earning income with little to no effort required to keep it consistent.

Why does recognizing these classifications matter?

Accomplishing your financial goals depend on understanding the difference between these terms.

When you think about the time you spend on each stream of income you have, how much time do you block out every day for each one? Do you spend more time on your active or passive streams of income?

Active vs. passive income is a battle between getting paid now and getting paid later down the line.

Realistically speaking, succeeding in active income results in succeeding passive income eventually.

So if you find yourself with limited time throughout the day to focus on your streams of income, what streams are more important to focus on?

Focusing on Active Income

In fact, for most people starting out, an active-income approach is probably the fastest way to build that financial "cushion", as well as finding your way out of debt. For active income side hustles, there isn't a huge upfront monetary investment. This means that you will most likely see financial returns nearly immediately.

Focusing on Passive Income

However, when you focus solely on active income, it can seem like you always need to be working in order to see financial stability. Focusing on passive income can give you some financial breathing room, and probably relieve the stress of non-stop hustle day-to-day.

Finding Balance Between Active and Passive Income

Finding a balance between Active and Passive income can be difficult unless you know for sure what you are best at. If you don't, however, it may be a good idea to experiment with different ratios. Start with 75 active/25 passive, see if that is a good fit, and go from there. You can always change things up when your active income feels like its getting to be too much, or if you think that your active income streams are giving you a consistent paycheck.

When finding your personal balance between Active and Passive income, ask yourself questions that reflect who you are as an entrepreneur.

- How much time do you spend on your active income streams vs. passive income streams?

- How much time do you want to spend on your active income streams vs. passive income streams?

- Do you feel financially secure in one stream or the other?

- Are you short on time, or do you feel as though you have more time to focus on your side-hustles?

Whatever you decide, remember that being an entrepreneur is all about working for yourself and doing what you are passionate about. Everyone's passions are different, so although you can always benefit from learning from someone's journey, you can't compare your own journey to theirs. Do what's best for you!