How to become financially stable.

In checking out the site and following some links around, I saw that someone (Whitney 05, I think) requested a hub on this topic. And since I've been asked this question a number of times I thought I'd give this topic a shot. So here goes.

Now, I don't like using terms like "expert" because that comes across, to me at least, as a bit over-the-top. Anyway, in another hub I mentioned that I used to teach math for a living. And then our son was born, and that changed everything. And I mean everything.

Since my wife always wanted me to get into business for myself, I did just that (with her help and support, of course). And for the past 5 years I've worked with a wide range of people, from business owners to families and single people. Which means nothing more than having some experience in thinking through this matter with actual people, and helping them answer concrete problems.

If you're curious, I have 2 primary businesses.  I help set up merchant accounts for business owners (or slash their merchant processing fees if they are already set up. 

I also help business owners use the internet effectively (and cost efficiently) to market and grow their businesses through Success Marketing, LLC.

Okay, so much for a little back-story.

I'll address this point by listing each tip, not necessarily in order of importance, but as they seem relevant. It just seems to make sense to do it this way, since ranking tips in a kind of hierarchy seems to place importance on one above the other. And, in my opinion, the 3 really fit together as a whole. You'll see why in a minute.

Tip #1: Diversify your income sources

What do I mean by income sources?

Here's an example of what I'm driving at. Say you are married, or in a relationship with a significant other, and you both work for the same company. Why could that pose a potential problem? What happens if the company relocates, downsizes, or outsources your position (of the position of your significant other)? What will you do now?

Most people I know that are living together need both incomes to survive. If the source of income to a household comes from one company, and only one company, that's a major red flag. The days of the mega-companies taking care of you until you get the gold watch (like my grandfather, for instance) are long over.

If your single, this potential problem isn't as much of a concern. But I'll give you one case where it could be. A good friend of mine, for instance, has a hard wood flooring business (don't worry, he won't read this... he hates using computers). Now, during the housing market boom over the past several years, he was always busy with work. He never had to market his services at all, since all the builders knew him, his quality work, and needed him to install flooring in the new homes they were putting up.

Quite simply, he was in demand. So let's say he decided to invest some money in real estate, either by building up properties, or flipping older homes after a little "spit and polish," or focusing on rentals. He didn't do this, mind you, but a number of his contractor friends did. So what happens when the source of your everyday income, which is tied to a strong housing market, begins to dry up. And the supplemental income you were hoping for dries up as well, since it's tied to the exact same factor-- the housing market. Could you see how this could be (and currently is) a huge problem?

Tip #2: Diversify your income types

There are two perfect examples that come to mind for this tip. One involves an episode from HGTV "My House is worth what?". The other involves a couple that live somewhere in CT (I don't know them personally, and have never met them, though I know their story). I'll stick with the HGTV example, since there's a small chance you may have seen the episode and remember the points I'm trying to make.

On a recenly aired episode, a couple was in the process of selling their home. The reason they gave involved refinancing their home a couple of years ago to purchase a business (first mistake). Now the business was a bit slow, and their mortgage was probably going up as well (they didn't say they had an ARM, but most likely it was, since just about everybody had one). But I digress. Any, they clearly were not making the money they needed to make to afford the mortgage payment, and other bills as well.

Now, here's where they made their second, and probably biggest mistake. They both worked in the business. Major problem. Why?

Well, first, it violates tip #1, since the source of income is the same business. So when revenue is down, you're hit with a double whammy (pardon the technical term) because both paychecks are dependent on the one business. But this tip comes into play (types of income) because they are now business onwers, and both of their incomes is self-employment. Which means, no steady paycheck.

Trust me, there's a lot to be said for a steady paycheck coming in when you're starting a new business. It's nice to have some steady income you can depend on, because the bills that need to be paid, like mortgage or rent, utilities, etc., need to be paid on time. The electric company doesn't want to hear that your revenues were down 2nd quarter because yada yada yada.

Probably the best situation is when one person is self-employed and the other has a full time job (that's our situation, in fact). Beyond the steady paycheck, probably the most important thing is having health benefits. And getting coverage can be very expensive if you're self-employed, and even worse if you need to cover more than yourself.

If you're single, this tip can still apply to you as well. If you're looking for some extra income and already have a steady job, you should absolutely avoid getting another job. That's the last thing you need. Too time consuming for the amount of income you can generate, and you'll be on another set schedule (most likely).

In this fits your situation, you should look for something that is flexible, and something that you'll own or can own. And make sure it's in a field that is very different from your full time job. If you paint houses for a living, for example, the last thing you need to do is to start a part-time house painting business on the side (unless of course you are preparing to open your own business one day).

Maybe that last example wasn't at all as clear as I would have hoped for. The point I'm making is that people with steady paychecks who are living on their own should look for opportunities that they can own outright, a self-employed type situation which provides flexibility and diversity from their 9 to 5.

Tip #3: Multiple streams of income

I've already hinted at this one above with the example of a single person looking to earn a bit more income on the side. Quite frankly, you can never have enough side income.

Or enough streams of income. The reason is simple: markets change, economic conditions change, companies change and relocate. The only constant is.. change. Having multiple streams of income established, with some running on autopilot, is the best way to recession proof your lifestyle.

As an example, Realtors should look for income sources outside of real estate. This rarely happens for most people, primarily because knowledge of a particular field leads to a false sense of security, a feeling that you might know all the angles. I know a pharmacist who only invests in bio-tech companies. His familiarity with the subject matter makes him feel "immune" to potential problems on the horizon.

Needless to say, from my perspective, this is not the best way to set up multiple streams. How are you insulated from potential economic disasters if every stream of income is related to one field, or specialty, or niche?

In my opinion, the only path to financial stability, which is another way of saying financial freedom, is to follow these tips to make sure that income sources do NOT overlap.

I hope you found this information useful. I don't pretend that it's complete, or the last word on the subject. In my opinion, these tips are implementable and essential for financial stability. Only by having diverse streams of income from diverse sources can you recession-proof your lifestyle from future, inevitable changes.

Having a side income in any economic situation is always a good idea. The challenge is finding a home-based business opportunity that will really deliver what you need: a side income that is possible and sustainable without working an 80 hour work week.

Bottom line, do a bit of homework, and ask lots of questions. You need to know all the facts before signing on the dotted line.

For recommended reading, and the list could be quite long here, I'd start you with Tim Ferris' The 4 Hour Work Week. I've recommended it to a number of friends, and it certainly will get your mind working.

And as always, feel free to post a comment or question when you get the chance. I will send out a reply. You have my word.