April 23, 2012

Keeping Your Golden Eggs In One Sturdy Basket

mary carlisle bunny pinup
I am going to play the part of the contrarian in this post, even though I may not totally agree with what I am about to write.  It has to do with diversification.  Specifically, income diversification.  We’ve all heard the saying, don’t put all of your eggs in the same basket.  Typically, this is really good advice.  It is especially good advice for investment holdings.  But, when it comes to income, is this really realistic for the average person?  Can anybody find the means and the time to gather several different income streams?  Is this really the best way to insure financial freedom for the future?  Maybe for some people, but maybe not for others.  Personal finance is personal, and each individual must find what works best for them.  Perhaps putting all of your eggs into one basket just might be the best thing for you.

Income Diversification by Multiple Baskets
I recently read a post by Amanda on her blog, Frugal Confessions, about this topic.  She states that Keeping All Your Eggs In One Basket is Risky.  In her case, this isn’t just an analogy.  She actually grew up on a farm and her post talks about literally gathering eggs from the chicken coop and putting them into a basket.

I was reminded of this post when I more recently read another post by Sam over at Financial Samurai.  This one is entitled, Achieving Financial Freedom One Income Slice At A Time.  If you read much of Sam’s blog, he is always writing and dreaming about one day quitting his day job and living off of personal business, investment and even unemployment income.  This post lays out in detail all of the income streams that he is working on.  He writes about the importance of diversification and creating buffers for your income sources.

I agree with both of these posts and think they both offer sound financial advice.  But, is this advice for everybody?  Obviously, it can’t hurt to have multiple income streams.  If a person is at a point in their life where they can work to achieve this, I say go for it.  By all means, make as much money as possible in as many different ways as possible.

Focused Income With All Eggs In One Basket
And now here is the contrarian point of view.  I can’t say that this idea is an original one of mine.  I heard it mentioned on a podcast I listened to this week.  I can’t remember which podcast, as I listened to a ton this week.  In a nutshell, this is what the guy said...

I think it is okay to keep all of your eggs in one basket.  As long as you own that basket and you are always keeping a close eye on it.

As soon as I heard that I immediately thought of both of the blog posts I linked to above.  It then got me thinking that this might actually make sense.  If you take the power of focused intensity and pour all of your energy into one income source, you could come out ahead.  If you put less energy into several income sources, each one may not get the attention it needs to be successful and profitable.

This could especially hold true for a small business owner, which ties this into the analogy of owning the basket.  When you own the basket, or the business, you have control of it.  You keep your eye on it and you make decisions that affect the outcome.  If you don’t have actual ownership, you may not take ownership.  This could have a negative affect on the amount of income from that source.  We’ve all heard advice from employers saying that you should treat the business as if it’s your own.  Well, that’s a lot easier to do if it actually is your own.

The point is, if you own a business it will have a better chance of success if you give it 100%.  This means putting all of your eggs into one basket.  One basket that you own and one basket that you are constantly watching and controlling.  Putting 100% effort into one business will likely be more beneficial than putting far less than 100% into each of several businesses.

A Personal Conclusion
Being that personal finance is personal, not every person has the desire to own a business.  For that person, income diversification is probably the best route for the long term.  This person should create future income from their main income by saving and investing.  Income diversification within a married couple could simply mean that each spouse has an income.  Income diversification during retirement could mean that some of it is through a government program like Social Security, some of it is from a pension and some could be private savings and investments.

A personal goal by many is to one day own their own business.  Create their own income and be their own boss.  Income diversification for this person is perfectly okay and probably even smart.  It may be just as smart though for this person to not diversify.  By focusing all of their time, energy, money and effort into one income source, they could strike gold.  They might just find the goose that hatches golden eggs.  If they do, why not get one sturdy basket and keep all of the golden eggs in that one basket.  Own the basket and keep a close eye on it.  Be the contrarian and go against conventional advice.

Readers:  What do you think of this unconventional advice?  Can you see the benefits of not diversifying and instead putting all of your attention and effort into one income stream?


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