Help, I only have one source of income!
At cfg, we love financial education! We strongly believe that people that understand the essence of (personal) financial planning are better prepared to succeed in life and overcome hurdles that we all have to face from time to time. In the coming months, we will therefore cover some subjects that we believe are worth a second thought by our readers.
Today we would like you to answer the following question:
“From how many different sources do I receive income on a regular basis?”
If you can reply with “2 or more”, you may be on the right track in being financially stable, but if your answer to this question is “1” or even “0”, then there may be work to do.
Most of us are employed, which means we have a labor agreement with a company (or government institution). We work 40-hour weeks and receive a fixed salary. With that salary, we have to cover all their expenses: taxes, mortgage, car loan, food, hobbies, vacation etc. If our salary is high enough and we have some discipline, we are able to save some money for a rainy day. Every month the same routine is repeated: receive our salary, pay all our dues and wait for the next salary to come.
A little predictable and even boring, but at least we are safe, right? Well, less and less so….
Contrary to the past, employment is not a stable and reliable source of income anymore. More than ever, especially in the Caribbean and other more mature markets in the region, companies are shrinking workforces and/or outsourcing key tasks to other, more attractive countries. What was once a stable source of monthly income, is now at risk more than ever before.
But there is another key aspect of employment that should not be overlooked: as an individual, you can only work a certain amount of hours, provided that you are and remain healthy. Sure you can take on an additional job to make some more money, but then you are maxed out on your own physical ability to generate money. Unless you are a hot shot running the corporate ladder, your income will typically not increase year after year with significant amounts. In other words, the cash you will have available to live your life to the fullest, will be limited one way or the other.
Our advice is therefore not to fully depend on one single ‘laborious’ source of income. Can you think of other sources of income that could become and remain available for you in the near future? Other income that will make you less dependent on your current source (typically your 9-5 job)? Income that may eventually become more important than your current?
In our next blog on financial education, we will elaborate on alternative sources of income that should become available to you if - and only if - you want to live a less dependent and more prosperous life!
Written by: drs Walter Blijleven RA, CVA