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Diversification

Why You Need to Diversify Your Income Sources

By //  by Kevin M

Yesterday I ran into a friend I hadn’t seen in a few months; we only had a few seconds to talk but he let me know that he had lost his job a couple of months ago. Another buddy of mine was given word that his job would be gone by the end of this year. For what it’s worth, both men have families to support.

We hear stories of people losing their jobs all the time, so these episodes are hardly unique. But what is interesting is that both men were what you might call “well employed” – that is, each had a well-paying position with a large, well-known company that they had worked at for many years.

Why You Need to Diversify Your Income Sources

Jobs Are No Longer Secure

The moral of the story is that there are no safe jobs anymore. Anyone in nearly any job can be replaced either by some form of new technology, or by less expensive workers outsourced from overseas. This is happening with technical and managerial positions as well as clerical and factory jobs.

There are different ways to deal with employment instability and no matter how secure your job seems to be at the moment, you should consider investigating your options. And the time to do that is now, before you’re forced into it by a job loss.

Diversify Your Income Protect Finances

Savings Will Last Only So Long

Many people concentrate on building up their savings as a safety net in case of a job loss. That’s a good idea, however it’s not nearly as effective as it once was.

In an economy where it can take months or even a year or more to find a new job, a two or three months savings cushion just won’t be enough. Unless you can save enough money to cover your living expenses for a year or more, savings will do little more than give you a little bit of breathing room. Not that that’s a bad thing, but it will prove to be inadequate if the job loss turns into a long-term process.

What about unemployment insurance? There are two limitations with this, the first is that for most people, the amount of your benefit won’t come close to covering your living expenses. The second is that unemployment benefits only run for a few months. Like savings, they’ll help at the beginning but sooner or later, they will run out too.

Build up your savings in case of a job loss – but be ready with additional income sources. Savings will cover you in the months immediately following your job loss, but your additional income sources will be your long-term safety net.

How To Diversify Your Income Sources:

Using A Part-Time Job To Apprentice For A Back-Up Career

One of the best ways to be prepared for the loss of your job is to have another one ready. You may be able to do that with a part-time job. I’m not talking on a job pumping gas or serving lattes, but something more substantial.

Ask yourself the question, “If I didn’t have my current job what other kind of work would I do?” The answer to this question can provide you with the insight that will lead to the type of part-time job you should get. What you’re looking for here is a part-time job that will lead you into the career of your choice, or at least into one that could be a reasonable back-up career. .

By taking such a job on a part-time basis your accomplish at least two things: 1) you get the training and experience that you need to enter that field, and 2) you pre-position yourself in a job before you actually need one. The goal will be to convert the part-time job into a full-time one if you can’t find a replacement job in your primary career.

One of the problems with job losses is that they usually occur across an industry or even an entire career field. That makes finding a replacement job very difficult because not only are there a small number of jobs available, but there are also a lot of candidates applying for those jobs. Many people are having to change fields following a layoff.

With a serious kind of part-time job, you already have a replacement career waiting in the wings. The transition is shorter, smoother and easier because of your advanced efforts.

Diversify Your Income By Starting A Business

A similar alternative could be starting your own business. Choose a business that you would like to enter and/or one you have an aptitude for. You can begin it as a side venture and develop it at your own speed. The idea is to build up gradually so that if you do lose your job, you’ll be able to quickly convert the business into a full-time occupation.

Whether it’s a part-time job or a part-time business, not only will you be building a second career for yourself, but you’ll also be providing an extra income that you can put into savings. The combination of higher savings and a backup income source will leave you well prepared for whatever happens after losing your primary job.

Retraining

Retraining is another option. Even though some fields are in decline, there are others that are going strong or are in growth phases. Sometimes all you need to enter them is some formal training. This could be a degree program, technical training or just some courses that you might be able use as a springboard into another career field.

Check with the course offerings at your local community college. They often offer training in career fields that are what you might call “closer to the ground”. This might include fields that are more hands-on in nature, such as those in the medical and computer fields, as well as some of the trades. Those are the type of occupations that tend to do well no matter what else is going on in the economy.

Whether you decide to use a part-time job, part-time business, or some form of retraining, seize the opportunity now to prepare for a job loss that may come later. If the job loss never happens, you’ll have yourself a solid second income. But if it does happen, you’ll be ready for it.

photo credit: freedigitalphotos.net

Filed Under: Make More Money Tagged With: Additional Income, Diversification, Economics, economy, financial future, Income Source, Job, Job Interview, management, Protect Your Finances, Protecting Your Financial Future, unemployment, Your Financial Future, Your Income

Why You Need Life Insurance Before Investing

By //  by Kevin M

When people begin to invest money, they’re usually hungry for early results. They may approach investing with the conviction of a recent convert, saving and investing as much money as they can, even to the point of neglecting other needs, such as putting life insurance before investing. This is understandable, and quite natural, particularly if you are either young or relatively new to investing.

In spite of your enthusiasm, it is important to make sure that you have a few basics covered before you begin investing. One of those basics is life insurance.

You’re Not Ready To Invest Unless You’ve Covered The Contingencies

Investment advisers and financial planners commonly recommend that before you begin investing you should have a well-stocked emergency fund. That can include anywhere from 3 to 6 months of living expenses. The purpose of the fund is to make sure that you are protected from any income disruptions or large expenses that might force you to tap your investment portfolio ahead of schedule.

The fund enables you to carry on with the business of life, while keeping your investment portfolio protected from early withdrawals.

In essence, what an emergency fund does is cover a contingency – a temporary loss of income, or the unexpected arrival of a big expense or two. A life insurance policy functions similarly as a contingency plan. It creates a basic survival plan for your family or any other dependents that you have in the event of your death. This is a fundamental need, which means you should have adequate life insurance before investing.

Life Insurance Before Investing

Future Wealth Won’t Take Care Of Your Family If You Die Before You Get Rich

There is sometimes a thought that you don’t need life insurance, since your investment portfolio will eventually grow to the point where you will be effectively self-insured. This notion is especially popular among the young, since the prospect of their own death seems so remote.

The problem with this thinking is that it may be many years before you reach the point of being anything close to being self-insured through your investment portfolio. Let’s say that right now you have $10,000 to invest, but you fully expect it to grow to over $100,000 within the next 10 years. Maybe at that point you will be something close to self-insured, but what happens if something happens to you between now and then? What happens if you die when you only have $20,000 in investments?

Future wealth will not protect your family if something were to happen to you today. That’s the whole purpose of life insurance – as a contingency to take care of your family’s financial needs before you have the money that a large portfolio will provide.

The Cost-Benefit Of Life Insurance Is Much Higher Than An Equivalent Investment

One of the biggest advantages of life insurance is that you can quite literally buy six figures in coverage for just a few hundred dollars per year. This is especially true if you are in your 20s or early 30s. You may be able to buy $250,000 in life insurance for just a few hundred dollars per year.

If you are just starting out as an investor, it will take you many years – even decades – to accumulate that much money.

There may sometimes be the thought to keep your expenses as low as possible in order to maximize the amount of money that you have available to invest. If a large life insurance policy is only going to cost you $500 or $1,000 per year, it won’t be taking much away from your investment efforts.

And the benefit that you will have as a result of paying the relatively small premium will be enormous for your family.

Life Insurance Before Investing – Just In Case Your Investment Plans Don’t Quite Turn Out

It’s natural to be optimistic when it comes to investing. In fact, optimism is virtually essential to a new investor. But it is a sad fact that investment plans don’t always turn out the way we want them to, despite our best efforts.

Stock markets crash, individual investments blowup, and sometimes we need to tap investment portfolios early for unexpected reasons. The point is, investing is never a guarantee.

And just in case it doesn’t turn out as well as you hope, your life insurance policy can back you up with a plan to cover your family in the event of your death.

Life Insurance Should Be Seen As A Form Of Investment Diversification

You’re probably well acquainted with the idea of investment diversification. But not all diversification efforts are neatly contained within an individual portfolio. Some of the best forms of diversification you can have will be outside your portfolio. This can include an emergency fund, fixed income investments (like bank assets), and real estate.

But insurance can also be a form of diversification. As discussed above, it is a fail-safe against your death, at least until the time arrives that you have enough money saved and invested that you no longer need to maintain the policy.

If you can think of life insurance as a financial instrument that complements your investment portfolio, having it will seem more logical. And not having it can seem like an exercise in being penny wise, and pound foolish.

If you are an investor, especially a new one, do you have a credible life insurance policy – just in case? If not, then you need to make sure you pick up some life insurance before investing another cent!

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Filed Under: Insurance, Investing Tagged With: cost benefit analysis, Diversification, Insurance, Investing, life insurance, Personal Finance, personal finances, portfolio, retirement

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