How Many Income Streams Do You Have?

12/10/07 posted by Lazy Man

As some of the readers on my website, Lazy Man and Money, know, I was asked to resign from my day job a couple of months ago.As one might expect, it was an emotionally straining day. For many people this would be a simply disastrous circumstance. Take a minute and think about what would happen if you lost your day job - I’ll wait.

It doesn’t seem too good does it?

I found there were two major emotions running through me. One is the blow to my ego - that since of failure. I found I was able to escape depression by realizing that I was talented and experienced at things other than my career. The second emotion, and the one I want to focus on, was one of financial despair. There’s a natural reaction to wonder how you will pay the bills.

For many people this loss of 99% of their income would be a major obstacle in their life.

It was more of a speed bump for me.

Eighteen months ago, I realized that losing a job is always a possibility and took strides to diversify my income. The result was that the loss of my day job only represented 75% of my income. The remaining 25% would be extremely difficult to live on indefinitely, but it certainly stretches my emergency fund quite a bit. I’d estimate that I can live a year on it - more if I start cutting out some luxuries like I plan to.

I recommend that everyone try to build income streams separate from his/her day job. I know that it’s not easy, but you never know when a recession may come and take your job with it. I found that blogging, investing, and dabbling a very little bit in real estate works for me.

There are other options if those aren’t your talents. I have a friend who is really good with computers. He does computer maintenance for the neighborhood part time. You may even find that balloon art turns into a full time career. Imagine that - twisting balloons for a living!

Doesn’t it make you smile?

—

Lazy Man has been a lender at Prosper since February 2006. His lending has been written up in the Globe and Mail, Canada’s largest national newspaper. He is the author of the personal finance blog, Lazy Man and Money. He enjoys watching Boston sports while sipping diet cola.

Posted in Personal Finance Education, Recent Posts

16 Responses

sybadon | December 16th, 2007 at 1:32 pm

In this day and time, under the current economy , The threat of being laid off is hanging over alot of peoples heads. Building different revenue streams is a great, and might lead to a different career. I currently have 3 differernt revenue steams , each one about 33% of my income.

brownmoose_com | December 18th, 2007 at 2:42 pm

It’s also important for the community to realize that the money they invest with Prosper should be money they can afford to lose. Too often I’ve read of lenders using money that they couldn’t afford to lose and then when a borrower would default, they’d be in trouble. Remember, these are unsecured loans, folks!

RateLadder | December 19th, 2007 at 12:46 am

@brownmoose_com:

While I completely agree that these are unsecured loans, I take issue with you should only put money in that you can afford to lose.

This is not Vegas.

Taking a sensible approach to diversification and a realistic approach to credit qualifications is an excellent way to insulate against the inevitable default.

Properly insulated p2p lending investment is not the same as betting on red.

diversify, diversify, diversify.

brownmoose_com | December 19th, 2007 at 7:15 am

@RateLadder,

In an era of massive subprime loan defaults, government bailouts, and slumping home prices, it will have to take more than diversification for me to change my opinion on risk capital. The average American saves 0% and that is because they were lured at the prospect of fast money. I would guess that over 90% of the lenders on Prosper aren’t full time lenders. That said, there’s a lot of emotion tied up with our decision making. Nobody likes to lose money, just ask the banks! It’s much less stressful to slowly build a solid portfolio than it would be to take a second mortage on your house and use that to invest. Diversification or not.

I’m not saying Prosper is fast money, by any stretch of the imagination. A slow and steady approach to P2P lending remains the best approach from what I can tell.

RateLadder | December 19th, 2007 at 10:51 am

@brownmouse_com

My bone of contention was with “only invest what you can afford to lose.”

Properly diversified, it is nearly impossible that one would lose everything. With proper credit considerations and diversification, it is nearly impossible to yield less than a few percent even if you are unlucky in the Vegas sense of the word. And the potential upside is significantly higher than a bank.

Julie | December 19th, 2007 at 6:07 pm

@ Rateladder

Your “betting on red” analogy doesn’t quite work. The odds of doubling one’s money by betting on red are slightly less than 50/50. So I have a slightly less than 50% chance of doubling my money in one spin of the roulette wheel, a slightly less than 50% chance of losing all my money in one spin. However, if one keeps doubling the amount bet every spin, eventually one will win on red and double their money. It just requires a large bankroll in the event of many blacks in a row.

Either way, I still wouldn’t put any money in Vegas, or Prosper, or the stock market that I couldn’t afford to lose.

Julie

RateLadder | December 19th, 2007 at 6:21 pm

@Julie

You seem to be missing a significant point and caveat: diversify and reasonable credit considerations.

Which makes lending on Prosper more like an index fund and not a lose everything gamble.

Ben | December 20th, 2007 at 7:12 pm

Well, I live in Vegas and I’m betting on prosper all the way. Later

Marty | January 2nd, 2008 at 9:53 am

I am a late starter to prosper (December 2007). I saw an article in our hometown paper so I looked it up and started reading the blogs. This is definately not a get rich quick scheme. I try to find 50 dollars in my budget if not every month, then every other month to move my diversifying forward. This is my two cents worth. =)

Mark | January 21st, 2008 at 11:30 am

I think it’s good to have as many streams of income as possible. I use to only have one until I lost my job after the 9-11 bombings. Then I had to get 2 part time jobs and sell just about everything we had to survive.
It was really terrible at first, because I made a good income. But now that I look back on it, it was a great blessing. Now I know, not to depend on anyone job. I learned how to save for an emergency. I learned how to diversify. I learned how to survive, it really boosted my confidence!
So far at Prosper, I have 23 loans making me 14%+ in returns. I have only had two people be late on payments and no defaults, so far! Fingers crossed, LOL. Prosper is just one of my means of income. But every $50 extra that I can get a hold of, goes into Prosper!

Dana | March 9th, 2008 at 4:06 pm

Doesn’t the very nature of a p2p loan sort of mean you are diversifying anyway? I mean, I wouldn’t put all my eggs in one Prosper basket… but, at the same time, each borrower’s situation is different and I doubt that even half of them are going to default.

Willy | March 23rd, 2008 at 1:07 am

Everything is a risk to some degree when it comes to investing. As with any investment you must never risk what you can not afford to loose. You must also look at the risk factors of every borrower prior to lending. But most of all never let greed drive you. Properly diversified, that even if you took two loss hits, your other loans will balance everything out when they pay off.

Living Off Dividends & Passive Income | April 24th, 2008 at 12:42 pm

another great post!