Highlights:
- Diversifying your income means earning from multiple sources.
- It can help you make more money and enjoy greater financial stability.
- There are dozens of ways to earn income outside of your primary job.
Most of us earn income from our day jobs… and that’s about it! We might have a few bucks coming in from bank interest or investments and perhaps some income from a weekend side hustle — but the majority of income tends to come from a single source.
It doesn’t have to be this way! When you learn how to diversify your income, you pave the way to both extra cash and more financial security.
In this guide, we’ll cover the benefits of having multiple income streams and outline several ways you can diversify your income.
What are the benefits of having multiple income streams?
Before we dive into how to diversify your income, let’s talk about the why. There are many potential benefits of earning money from multiple sources:
Greater financial stability: If you have money coming in from multiple sources, you’re less vulnerable to a sudden change or job loss.
Greater earning potential: Earning from multiple income streams can improve your overall earning potential.
Potential for passive income: Many alternative income sources can help generate passive income. Passive income is money earned without much (or any) active effort on your part.
Better cash flow: Cash flow refers to money coming in and out of your household. With income from multiple sources, your cash flow will tend to improve.
More growth opportunities: With a traditional job, your opportunities for growth and income increases can be somewhat limited. With many alternatives, such as starting a small business, growth potential is theoretically unlimited.
How to diversify your income
Diversifying your income involves taking steps to generate extra income from multiple sources. This could be any combination of wage income, business income, interest income, and other potential sources.
The specific path you take to diversify your income sources will depend on your financial situation, skill set, free time, and the opportunities available to you. We’ll cover some specific ideas later on in the guide.
First, let’s dive into the two main types of income: Active and passive.
Active vs. passive income
Active income is income that you put in direct effort to earn. It’s essentially trading time for money. Examples of active income include:
Income from a traditional job
Income from a side hustle, like rideshare driving or mowing lawns
Income from contract work or freelancing
Active income doesn’t necessarily require much to get started — most people can find a job, start a side hustle, or earn side income in some way. But time constraints can limit earning potential, particularly if you’re already working a full-time job.
Passive income is income that requires little to no active effort to earn. In other words, you can earn passive income while you sleep. Examples of passive income include:
Interest from your bank account
Dividends from your investments
Rental income from properties you own
Passive income often requires a significant upfront investment of time, money or both. For instance, it takes a lot of money to buy a rental property or invest a substantial amount in the stock market. On the flip side, earnings from passive income are theoretically unlimited, as they aren’t tied to the amount of time you put in.
Creative ideas to diversify your income
Ready to get started? There are dozens of potential ways to diversify your income! Here are some ideas to consider first.
Are you a teen or the parent of a teen? Check out our roundups of teen side hustles and small business ideas for teens for more youth-specific ideas.
1. Start a side hustle with a gig-economy app
A side hustle is an active income opportunity that you complete in your spare time, often in addition to your primary job. The easiest way to get started is to use a gig economy platform like Uber or Rover. You could:
Drive for Lyft or Uber
Walk dogs or pet-sit on Rover
Complete tasks for neighbors on TaskRabbit
Provide childcare on Care.com
Deliver food via Doordash or UberEats
Shop for groceries via Instacart
The great thing about these platforms is that they help you connect directly with paying customers, so you won’t have to advertise your services. They’re also quite flexible with timing and have low startup costs.
2. Start a local small business
It can be hard work to run your own business, but it can provide strong potential for growth and income. The type of business you might consider starting depends on your interest, skills, and local economy, but here are some ideas:
Open a coffee shop, cafe, or restaurant
Start a service-based business, like an auto detailing service or a landscaping company
Purchase a franchise business, like a gas station or fast food restaurant
Open a small retail store, like a clothing boutique or convenience store
Start a small craft brewery or taphouse
The possibilities are endless here. Start by looking at your local economy and asking yourself what might be missing. What business might do well in your town? What are business owners in adjacent towns doing with success, and how might you replicate that?
Starting a business can involve significant upfront costs, but there’s quite a range. On the low end, as little as $10,000 might get you started with something like a mobile auto detailing business. On the high end, you might need $500,000 or more to start a restaurant or taphouse. The Small Business Administration is an excellent resource for entrepreneurs looking to start their own businesses.
3. Start an online business
You can minimize startup costs while maximizing flexibility when you take your business online. The downside is that you may face more competition and have to put more effort into advertising and attracting customers. To launch an online business you could:
Sell on Amazon or eBay
Resell used items online
Sell your homemade products on Etsy or Shopify
Start an eCommerce website
Start a blog or YouTube channel and monetize via affiliate marketing
Start a drop-shipping resale company
Create online courses or other digital products to sell online
Start a podcast
Generally speaking, online businesses have lower barriers to entry (meaning they’re easier to start), but they also may take more time to get going.
4. Earn passive income by saving and investing
You’ve surely heard the saying that it takes money to make money. And it is true that investments that start with some money can really make your money grow! You can earn passive income automatically by investing your savings. With extra cash, you could:
Invest in dividend stocks
Buy stock market index funds, like the S&P 500
Invest in real estate investment trusts (REITs)
Purchase bonds or bond funds
Save in a high-yield savings account or certificate of deposit (CD)
With this type of opportunity, you’ll typically earn a percentage of your investment. For instance, an S&P 500 index fund is a way to easily invest in 500 of the largest companies in America. Many of those funds pay dividends, which are a form of interest. Right now, the yield is around 1.75% — so you’d earn $175 per year for every $10,000 you’ve invested.
Keep in mind that many of these investments also have the potential to increase in value. The dividend yield might be just 1.75%, but if stocks also appreciate in value, you’ll profit in two ways at once! Investing is a great way to build wealth and provide income diversification.
5. Monetize your skills by contracting, consulting, or freelancing
Each of us has a particular skill set, which in many cases, can lead to additional income! Put your talents to use and:
Become a freelance writer or freelance designer
Consult for companies in your industry
Pick up part-time work as a contractor in your industry
Complete freelance tasks on platforms like Fiverr or Upwork
Offer services in your community based on your skill set
Many of these opportunities can utilize a skill directly related to your career, but it could also be a completely separate skill or interest.
6. Monetize your assets by renting them out
Another way to diversify your income is to use your existing assets to generate a profit. Depending on what you have, you could:
Rent out a spare bedroom on Airbnb
Rent out your car on Turo
Remodel your basem*nt to create a separate apartment to rent out
Rent out your vacation home or timeshare on VRBO
This is another category that requires that you own assets, but it can be a relatively simple way to make your existing wealth work for you.
Diversifying your income = financial freedom
Expanding your sources of income can be a powerful step towards making more money, feeling more financially secure, and pursuing financial freedom. Whether you keep things simple with one or two additional revenue streams or go all-in on several different income sources, if you learn how to diversify your income, your wallet will thank you.
If you want to help your kids follow in your financially-successful footsteps, check out Greenlight®. The Greenlight app helps kids and teens learn valuable financial literacy skills through an all-in-one money app that covers money management, investing, and education. Try one month on us!
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