Are You Diversifying Your Income? You'd Better Start. Just as a business shouldn't rely on one client, your personal income should never rely on one source.
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.