Are You Diversifying Your Income? You'd Better Start.

Are You Diversifying Your Income? You'd Better Start.
Image credit: Pixabay

Free Book Preview Money-Smart Solopreneur

This book gives you the essential guide for easy-to-follow tips and strategies to create more financial success.
Magazine Contributor
2 min read

This story appears in the March 2016 issue of Entrepreneur. Subscribe »

Everyone can agree: A business should never rely on just one customer to generate the majority of its revenue. When that client moves on -- poof! -- there goes the business. But you need to apply that thinking to the bigger picture, too. Are you relying upon your business to generate all your personal income? That’s a problem.

Don’t think of it as a knock against your ability as a business owner or your company. All you’re doing is hedging, and that’s smart. For example, one of my clients is a lawyer. She does well, but her business, like any business, has ups and downs. So she also bought the building that houses a Wendy’s franchise in Michigan, which provides her a 7 percent annual return on a lease that runs in five-to-seven-year increments. (I own rental properties, too. And as I wind down my business -- which, hey, isn’t happening yet! -- that cash will fund a sizable chunk of my retirement income.) 

So how much of your income should be diversified? The answer depends on your circumstances, tax situation and goals. Make a plan with your financial adviser. Here’s mine right now: I’m 45, with a decent amount of investable assets, so only 20 percent of my income is passive. Barring some unforeseen financial emergency, all that money is strategically reinvested. 

Now here’s where it gets interesting: Once you begin generating passive income, you can invest it in ways that build more wealth and eventually create, yup, more passive income. Let’s say you net $2,000 of income each month from a piece of rental property. Reinvest that income, like my lawyer client did, and it could earn 7 percent annually. After 10 years, you’ve got $334,000. Even $500 of additional income each month could turn into almost $100,000 in 10 years, depending on how you invest it.  

There are many ways to save and reinvest, but the process all begins the same way: As soon as your business kicks off enough income for you to start using that money judiciously, open your eyes to new income opportunities. You worked hard for that money—and that money should be given the opportunity to work just as hard for you. 

More from Entrepreneur
Our Franchise Advisors will guide you through the entire franchising process, for FREE!
  1. Book a one-on-one session with a Franchise Advisor
  2. Take a survey about your needs & goals
  3. Find your ideal franchise
  4. Learn about that franchise
  5. Meet the franchisor
  6. Receive the best business resources
Make sure you’re covered if an employee gets injured at work by
  • Providing us with basic information about your business
  • Verifying details about your business with one of our specialists
  • Speaking with an agent who is specifically suited to insure your business
Try a risk-free trial of Entrepreneur’s BIZ PLANNING PLUS powered by LivePlan for 60 days:
  • Get step-by-step guidance for writing your plan
  • Gain inspiration from 500+ sample plans
  • Utilize business and legal templates
  • And much more

Latest on Entrepreneur