How Important Is It to Have Multiple Streams of Income?

Last week, I posted an article about how busy people can build new income streams, and a reader sent in a great follow-up message that I wanted to address in detail. Here’s (most of) that message:

“I’ve been thinking about this more and more and my current hypothesis is that whether you should commit to multiple income streams or not depends on probability and your personal circumstances.

“After thinking about this some more, people who meet the following characteristics probably don’t need multiple income streams.
– already financially independent (3% SWR) and working full-time
– lives in a place where unemployment rate is 6% (which means 94% people have job and it would be easy to find something else if you lose your job)
– spouse works full-time
– job requires security clearance; which means high barrier to entry and high demand for people who have the clearance

“Please let me know your thoughts.”

In a nutshell, I think that the only situation where a new income stream might not be a great idea is if you’re already strongly financially independent and want to use your time in ways that don’t generate revenue, like volunteering or working on personal growth projects. That’s not to say that people who are not financially independent should avoid such things, but that there is an underlying financial pressure for them to look at income-producing side projects.

Here’s my reasoning behind that.

First of all, the end goal for most people in terms of their lifelong financial journey is some level of financial independence. That’s effectively what retirement is, after all; it’s a stage in your life where your previous activities have earned you enough money (and/or enough Social Security credits) so that you can live out your life without the need to continue to work for more money. My parents have reached this state, for example. My view is that if you’re short of that goal of financial independence, there is at least some financial pressure to do things that will earn you more money.

The thing to keep in mind is that there are essentially three ways that people use additional income.

A person might use additional income to directly or indirectly save for retirement. This ensures that either you’ll be able to retire earlier or be able to retire with a larger annual living stipend. (Note, of course, that when I say “retire,” I simply mean that you no longer have income as a primary motivation for working; I don’t mean a life of idleness, though that is one option.) A person might not directly save for retirement and yet still achieve this by doing things like buying a needed replacement car without a loan while bumping up one’s 401(k) withdrawals at work, or by investing in themselves to increase their earning potential; I’d argue that this is indirectly a form of retirement savings because if their income increases, they can use that money to directly save for retirement. Things like an emergency fund, insurance, and other financial protection tools also fall under this umbrella, as they protect your life’s savings from life’s unknowns.

On the other hand, a person might use additional income to inflate their current lifestyle. That means a higher standard of living, but that also means that sustaining that new standard of living will require a larger annual living stipend in retirement. This effectively delays retirement or else means that retirement requires a bigger drop-off in terms of standard of living.

A person might also use additional money for helping others through charitable giving, political donations, or other means. There are many, many ways in which this can happen, including making choices such as switching to part-time work so you can devote personal time to charity. Some people launch side gigs that are wholly devoted to generating revenue for a particular charity.

No matter what the realities of your life might be, additional income contributes to one of those three paths. However, once your savings grows beyond what is needed for financial independence, that path becomes less and less incentivized (unless you have hoarding tendencies, I suppose), which is why many wealthy people tend to eventually give away their money (Warren Buffett) or significantly inflate their lifestyle (Donald Trump).

Given all of that, I would argue that creating additional streams of income is useful for anyone who hasn’t yet achieved financial independence. However, simply saving for financial independence isn’t the only reason why developing additional streams of income is worthwhile.

It enables other life goals. Life isn’t all about the money. A person might decide that their current lucrative career isn’t something they want to continue devoting their life to, so they may want to change careers. Having an additional income stream or two already in place makes that transition much easier because it likely involves sacrificing a much lower percentage of one’s annual income. A person might even transition to working on one of those side income streams on a full time basis.

It offers creative outlets and other life outlets. For many people, a side gig is a way to express their creative side in a way that isn’t available in the workplace. For others, it might encourage them to do things that they want as part of their life, such as a person who works in an office who has a lawn care business on the side because they want more time outdoors moving around.

It offers the chance to make new connections with people. Operating a side gig is almost always going to put you in new communities and help you build new connections with people. Some of those connections may end up changing your life in ways that you never expect – new friends, new business partners, and so on.

In the end, I don’t feel that the relative security of one’s life is a reason to say no to a side gig. A side gig serves as insurance against things that might create challenges outside of your career path. It offers the potential for creative and other outlets you might not have in life. It offers new connections to people. It does all of that while potentially building your income and bringing you closer to early retirement.

I’m a huge proponent of side gigs, in other words, because I feel that the benefits of side gigs go far beyond the income you might earn. Side gigs offer life benefits that might simply not exist in your life without them.

Most of the things that the reader mentions above are very effective career safeguards. Low unemployment, a spouse that works full time, and a career that has a bunch of specialized requirements that you already meet – all of those things provide very nice career security. However, career security alone doesn’t address many of the key benefits of having a side gig. Career security is useful, don’t get me wrong, but side gigs offer a ton of benefits that aren’t conveyed by career security alone.

So, here’s the take home message: don’t let career security convince you that there’s no benefit to you having a side gig. A side gig can provide a creative outlet for you that might not exist at work. It can help you build new relationships and connections. It can make other life goals possible and help you deal with unexpected events from outside of your career. It can also help accelerate you toward an early retirement, too. I consider all of those things to be incredible benefits from having a side gig that remain true no matter how much career security you happen to have.

Good luck!

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