“NEVER DEPEND ON SINGLE INCOME. MAKE INVESTMENT TO CREATE A SECOND SOURCE.”
WARREN BUFFETT
Motivation Monday - Richard's Insight
I have been thinking about this a lot of late: how important to have at least two, possibly more, sources of income. Here are some of the reasons why having a second, or more sources of income is not just desirable but essential:
1. It avoids over-dependency on a single source – this sounds obvious and yet it is worth stating. Many people are reliant on a job or their own business to provide for their means. However, lots of things could happen that could remove this source such as changes to pay structure, redundancy, health issues, competition (applies to jobs and businesses!), bad economic conditions, etc.
2. It provides for our future – having an additional income source should allow us to save and invest and this can help to make our future more comfortable (be it retirement, when we start a family, etc.). For example, generating an extra £100 per month and then depositing this into an ISA at a combined 8% annual rate (capital and dividends together) would turn into over £18k in 10 years or around £59k in 20 years…tax-free!
3. It allows us to avoid expensive personal debt – we can pay cash and pay down debt more easily when we have additional sources of income. As Einstein says with compound interest: those who understand it earn it, those that don’t pay it!
4. It provides us with opportunities to both capitalise and defend – depending on the circumstances, we could buy assets that are undervalued (Buffett would concur with this one!), or to whether the shocks of poor economic conditions, such as recession or interest rate spikes, unexpected bills, etc.
5. It can fund our lifestyle – having a surplus income from several sources also allows us to fund lifestyle purchases and experiences that we may otherwise not be able to afford. How many people fund their annual holiday on their credit card or by other credit? Quite a few, however, if we were able to generate an extra few hundred pounds per month as additional income this would avoid that option.
Which one’s your favourite then? Can you think of more reasons to seek additional income sources?
It doesn’t really matter; what does matter is to have the choice to make in the first place, that’s why, personally speaking, I seek multiple sources of income: job, businesses, dividends, investments, etc.