Building multiple streams of income is no longer a luxury, it has become a necessity. If the high rate of unemployment and mounting job losses have taught us anything, it is that nobody's job is safe. Unfortunately for most people, their only source of income is from their job, which can be a risky way to live. Some couples may be more fortunate and have a spouse bringing in money each month, but they are still relying on a job for their livelihood.
[In Pictures: 12 Money Mistakes Almost Everyone Makes]
Because of the financial risks involved with relying on a job for all of your incoming cash, it is critical to consider having at least one additional source of income. The list below details a few reasons why having several sources of money coming in is important and how this extra cash can be used.
Here are ten simple reasons why building multiple income streams is so important. Each item listed below is an example of how alternative income sources can be used to lesson the risk of living on a single income.
- Rising Health Care Costs Whether you are in favor of the health care reform or not, chances are you are feeling the pinch of higher health care costs. Adding an extra income source can go a long way in paying for things like higher prescription costs and unexpected medical costs.
- Unemployment How safe is your job? Let's face it, no job is really ever safe, especially in a tough recession. Having other sources of income can help you deal with a job loss much easier than being caught off guard. Even if your other sources of cash can't cover all of your monthly expenses, it can still give you time to figure things out.
- Paying for College How much are you saving for your kids college? Instead of putting your retirement at risk by saving up for your child's secondary education, why not create an alternative income stream to help out. Having multiple streams of income bringing in cash every month can help ease the burden of paying for college.
- Living Within Your Means In order to build true wealth, you must be able to live within your means. If it is impossible to cut your spending any further, or you just don't want to sacrifice anymore—create a new source of money. There are only two ways to live within your means -- either spend less or make more money.
- Pay Cash for Purchases How many times have you been able to pay cash for a car or could pay for a large home improvement project without taking out a loan? A second or third income stream could be used to save for these types of purchases so you don't have to take out a loan and pay any interest. What a concept—pay less interest and keep more of your money!
- Build a New Income Stream What better way to use your extra income then using it to grow another income stream? If you don't need it to survive, then why not use your extra income to your advantage to increase your monthly cash flow and become financially independent?
- Pay Down Debt Paying off your mortgage, vehicle, or credit cards is a great use for an extra income stream. If you can avoid paying tons of interest on a loan by making extra payments on existing debt, then you could be on your way to financial freedom.
- Diversified Income Sources Any good stock broker will tell their customers the number one rule as an investor is to build a diversified portfolio to reduce risk. If you would diversify your investments, why wouldn't you do the same with your income streams? Creating multiple income streams allows a person to diversify the various cash flow sources that are coming in. In the event one dries up, then there are other sources of income to lessen the loss.
- Build a Holiday Fund This is something my wife and I recently did after I earned some extra freelance income. Instead of stressing about how we will pay for all the extra holiday expenses this year, we simply designated this alternative income stream to be used for the holidays.
- Take Control of Income When was the last time you got a raise at work? Even if you have received one in the past year, there is no guarantee you will be getting one next year, especially the way the economy is behaving. Do yourself a favor and take control of your finances by creating multiple streams of income. That way you have the power to give yourself a raise anytime you like!
[Visit the U.S. News My Money blog for the best money advice from around the web.]
There is no magical limit as to the number of extra income streams you should create. Just as long as the time you spend maintaining them doesn't become too cumbersome and they produce positive cash flow. There are plenty of important benefits to creating many income streams to decrease your risk of having your main source of income suddenly dry up. Even if your alternative sources of income cannot cover your monthly expenses, they can at least help lessen the blow of a job loss or other unexpected expense. If you are lucky, these income streams could potentially do more than just supplementing your income and help fatten up your savings accounts.
Your thoughts: What other reasons it is critical to build multiple streams of income? Do you try to to do this?
Pinyo is the owner of Moolanomy Personal Finance Blog, which covers a wide range of personal finance and investing topics, with features that include reviews, comparison guides, and Q&A sections.