Multiple Sources of Income
“The Conservative belief that there is some law of nature which prevents men from being employed, that it is ‘rash’ to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years. The objections which are raised are mostly not the objections of experience or of practical men. They are based on highly abstract theories – venerable, academic inventions, half misunderstood by those who are applying them today, and based on assumptions which are contrary to the facts…Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense.” (J. M. Keynes)
“Profits depend on high or low wages …” (David Ricardo)
“Because of high unemployment, management is using its leverage to get more hours out of workers” (Robert C. Pozen)
This concept is very foreign to many in the middle class who have traditionally thought of a job as the sole source of income – but it is key to a solid financial foundation.
The overriding objective is to diversify your personal finances and cash flow away from dependence on any source – especially those that you have no control over (for example, oops!, a job).
Why should you not depend on your job as a sole source of income? Have you ever heard of NAIRU? What economists refer to as the Non-Accelerating Inflation Rate of Unemployment?
The rich elite, who control your job (directly as employers and indirectly as ultimate government policy makers) have decided that there should be an ideal unemployment rate (above 0%) to ensure that inflation is kept under control so that the value of their financial assets would not be rapidly eroded. The rich man’s utopia is one in which there is high unemployment and there is no government unemployment benefits. In such an environment, the rich can prey on the poor and middle class working folks, drive down their wages and benefits and get them to work more hours for less pay – because they have no options. Should they (MCFs) fail to happily adjust to the ‘new normal’, they would join the crowd of unemployed and someone else (who would happily accept the rich man’s terms) from the unemployed pool would be immediately hired for a lower wage and/or fewer benefits to replace the laid off MCF.
This is why middle class folks (MCFs) need to develop multiple sources of income as well as impress it on their kids and other relatives that it is foolish to depend on one source of income. Of course, when starting out, you will probably have only one source – your goal should at that point be to use that single source as a seed to plant many trees so that the single source yields many sources in the near future.
Furthermore, MCFs need to borrow a page from the playbook of the wealthy few. In the best of times, they plan for the worst – rich folks remain greedy and paranoid whether times are good or bad. By planning for the worst case scenario, they position themselves for the best possible outcomes. MCFs on the other hand tend to hope that good times will continue forever – they usually have no ‘Plan B’. When MCFs get a sudden windfall, maybe an unexpected bonus (or a larger bonus than anticipated), they tend to go out and spend it on the next ‘hot’ item of the moment (iPad, iPhone 4 or whatever is ‘in’) instead of ‘planting’ the excess as a seed and giving it time to “…take root downward and bear fruit upward” (Isaiah 37:31 KJV).
There is no such thing as job security – even if you have the type of job where you never get fired, you cannot count on the other parts of a contract such as a pension and other benefits (ask the retired US auto industry workers and the retired public sector workers of Colorado). One interesting note to public sector workers (especially in developed countries) – the governments may be slow in altering contracts but once Colorado does it successfully, you’d be surprised at the speed with which other state, municipal, provincial and federal governments make similar cuts and adjustments.
The only income you can count on now and in the future is from your Personal Equity – in a fast changing world, jobs and benefits tied to jobs are not worth banking on. This is not to say that most jobs will not deliver – but how are you sure that your job(s) will not be among the negatively affected one(s). It’s always best to plan for the worst-case scenario – it enables you to position yourself for best outcomes in the more likely scenario. Plus, while you may not be able to pass on a pension or other retirement benefit to your heirs and/or estate, your Personal Equity can and should be passed on as efficiently as possible.
Have you noticed that most employers (government, non-profits, charities, foundations, small and large businesses) are ALWAYS seeking new income (revenue) sources? If you want to know how long your employer will remain viable, investigate its commitment to NEW revenue sources. Even governments are constantly on the prowl for new revenue sources – if taxes are unpopular, they may label the new taxes as user fees or some other label. Charitable organizations have to set goals, seek out donors and exceed previous targets EVERY year – if they don’t seek to expand their means, other competing causes that are focused on expansion will squeeze them out. The question to me in the middle class is – what new revenue sources am I seeking out every day? The search for new revenue sources should be never ending – why? The folks who want your money (government, sellers of goods and services and so on) are constantly looking for ways of getting more out of you. The only new revenue sources a typical MCF can think of is usually a new job or a salary increase at the present one. This is a start but far from sufficient – firstly, the income so generated is the most tax-inefficient. Secondly, in the absence of job security – what is your Plan B when something goes wrong with your job?
The MCWB Club is an ideal platform for MCFs seeking to develop multiple sources of income. Join today – if you have already joined, consider inviting a friend or relative using the Tell-A-friend tool below.