[This post is written by Derek from Creating A Passive Income. His goal is to explore every single passive income source there is and evaluate their effectiveness and revenue. If you’re interested in extra income, be sure to check out his site.]
There is a common piece of advice going around between parents and students. “Go to school, find a safe, secure job with good benefits, and you’ll retire well.” Let me be the first to tell you, this advice is terrible.
In our world today, there are fewer jobs than there are people, and employee turnover is higher than ever before. If you make a mistake or if your salary exceeds what is typical for your position, you might very well be on the chopping block. You might have your college degree, but guess what, so does everyone else.
The Typical Response for Financial Security
Occasionally, things just don’t work out with employment. It might not even have been your fault. The decline of the economy, the struggling sales of your company, or a transfer of ownership could be the cause of your job displacement. Whatever the case may be, you should have a financial plan in place so that you’re protected against total bankruptcy.
Once again, there’s some common advice out there – “To protect yourself from financial devastation after a job loss, you must have an emergency fund with funds equivalent to 6 months worth of expenses.” While I do condone an emergency fund, this alone will not protect you against complete financial failure.
After all, what if you just can’t find a job until month number 8? What happens then? You load up the credit cards? I hope not. The problem with setting aside a static stash of cash is that it is not regenerative. If you keep pulling money out and no more money gets put in, it WILL run out!
photo credit: Stuart Miles
The Best From of Financial Security
In these economic times, one really has no sense of security in a typical job. I’ve seen it too many times – people proclaim that no one can do what they do and that they’re too valuable to get rid of. And then….they get the boot….
Rather than depend only on an emergency fund for that potential job loss, I suggest that you focus on two more aspects of financial security.
1) Live well below your means
2) Build a residual cash flow
Live Well Below Your Means
My wife and I both work and we make a point to live off only one of our incomes. That way, if one of us loses a job (it’s happened before), we’re still completely fine financially. Maybe you can’t bring your expenses down to half of what you’re used to, but make an effort to reduce them and you’ll feel much more secure in the event that a job is lost.
Build a Residual Cash Flow
Instead of having just one or two incomes, why not go for three or four? That way, if one of your jobs says “see-ya”, it won’t be that big of a deal. My wife and I both have full-time jobs, plus she does photography on the side and I earn quite a bit of money through various passive income ventures. Now this is a true set-up for financial security, wouldn’t you say?
Perhaps you’re strapped for time and cannot possibly start another venture. If this is the case, then at least have some potential income options written down. You don’t want to lose your job and have no possible income sources. This is how you deplete your emergency savings in record time and make friends with the repo men…
Have you set up an emergency fund in the event of a job loss? Have you done anything more?
article photo by cooldesign
Yes! And always keep my resume up to date.
What used to work in my opinion is no longer valid today. You are right when you say its bad advice to say just go to school and get a good job. No seems to want to save anymore or even have a back up plan. Most over spend and many think everything are must have.
There simply needs to be a balance between income and living. Living below your means is a great way to stay on top. I believe the savings but not many will take the time or have patience to build a residual income source.
Sometimes things just don’t work out and that is when we need to realize what is needed and what is not. I have had both spectrums so I speak from rich and poor experience.
Sometimes we don’t realize how much we waste on things we don’t need. At the time everything seems like a necessity. Learning to live below our means cuts back on the wasteful spending. Adding that to having multiple forms of income definitely help relieve financial pressures.
You are right; the wisest thing one can do is build multiple streams of income. In the event you lose your main source of income, you have the other revenue streams to help you survive in addition to an emergency fund. I don’t know why this isn’t taught to college students more often.
It just seems like common sense doesn’t it? It just like when you travel to the big city, you’re taught not to keep all of your money in one place on your person in the event that you get pick-pocketed. If you have multiple money stashes, you’ll still have something left for that cab ride home! 😉