Wise investors know full well that it’s best to hedge their investment risk. The same should be true for you as you evaluate your personal financial situation.
Most of us have one job. We go to work each day and diligently perform the duties before us. If we’re smart, we participate in our employer’s 401(k), contribute to an IRA and save at least three month’s salary. That is the most common strategy work-a-day slaves guard against loss of income and plan for retirement. And, that’s fine for most folks. However, it’s a position I find to be untenable in my situation for the short and long term.
There is no guarantee if you lose your job you’ll be able to find a new job that matches your skills, interests or even expected income level within your three month cushion. Sure, you can take a penalty a draw against your 401(k) or IRA, but you pay a steep penalty for doing so and it probably won’t buy you a lot of time anyway. Take my wife for example. She left a job nearly six months ago and has not found a suitable place to land since. Granted, she has had the advantage of my income to cover her expenses, but imagine if that were not the case. What would she have needed to do in order to meet her monthly outlay? Anything from working a couple part-time jobs to temping to taking a lower paying full-time job are all options she might have needed to exercise. That just sucks and it happens to lots of people every day.
If you are an executive, three months’ salary won’t cut it. You need to have a six to twelve month reserve. The higher you soar, the harder you fall and the more difficult it becomes to find the right fit as well as adequate compensation. That’s me in a nutshell. As I mentioned in my post on transitioning, if you are forced to move on, you have to have a game plan to replace your current income. In my case, it’s my start-up. What if you knew that you wouldn’t have a job in six months? What would you do?
It’s crazy not to diversify your income sources. It’s crazier still to accept your current income as sufficient. If I’m hiring a sales guy or business development guy, I always ask him what his income target is. If I get a response that isn’t titanic (better yet, infinite), it’s a real turnoff. Where is the hunger? You must be hungry to succeed and excel at whatever it is you do. It’s about passion.
Run through all the “what if” scenarios you can think of in your own life and start to consider how you can take active steps to mitigate risks. Think about it, it’s the very reason we buy insurance or extended warranties on big ticket items. Start working on an insurance plan for your income and do it today. The only thing that’s in your way is you. Find a few hours here and there and just get moving. Then, let that momentum carry you forward.
What are you doing to actively diversify your income? Tell me in the comments below!
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