How to Protect Your Primary Income
Cash Flow

How to Protect Your Primary Income

If you’re like most people, you rely on a primary source of revenue to handle your living expenses, and fund your way of life. This may be a full-time job, a stream of revenue from a business, or some other major source. In any case, a single disruption could interrupt or end that flow of revenue—leaving you practically unable to meet your expenses. For example, if you’re fired, or if you become permanently disabled, you may no longer be able to work, and your income may dry up.

Fortunately, there are many strategies you can use to protect your primary income, both to decrease your chances of living without it and to establish a backup plan in case something bad happens to you.

Emergency Savings

One of the best things you can do to start is gather funds for emergency savings. Accumulating a few thousand dollars as a financial cushion can help you pay your bills long enough for you to figure out what to do next. For most people, it’s ideal to have enough money to cover three to six months’ worth of expenses.

If you’re struggling to accumulate these funds, focus on setting aside a bit of extra money each month. It doesn’t have to be much; over time, even small contributions can eventually add up to serve your needs. To allow for this “extra” money, you may have to cut expenses, increase your income, or both. Cutting expenses could mean minimizing your unnecessary costs, like entertainment-related expenses, or something more drastic like moving to a less expensive neighborhood. As for increasing your income, you could seek a raise or promotion in your current line of work, or you could develop multiple streams of income (which is a useful strategy of its own for income protection).

Long-Term Disability Insurance

Next, make sure you have a long-term disability insurance policy. Long-term disability insurance kicks in if you’re ever injured or if you suffer a condition that prohibits you from working the way you once did. Depending on the terms of the policy, you’ll likely be covered for any type of accident or disease that renders you unable to work.

Many employers offer a long-term disability insurance policy to their employees as an employee benefit. If you don’t have this option through your employer, you can seek an independent policy of your own.

Multiple Streams of Income

One of the most popular ways to protect your income stream is to diversify your sources of income. If you own a business, you can do this within the business by creating new ways for the business to make money; for example, in addition to serving food in a restaurant setting, you could live stream entertainment and sell merchandise.

If you’re a full-time employee or if you’ve already diversified your business’s income streams, you can establish new streams of revenue in other ways. For example:

  • Pick up a side gig. You could start a side gig to make extra income, assuming you have the time to manage it. This could be something simple, like selling one of your favorite crafts online, or something more robust, like launching your own side business as a consultant in your area of expertise.
  • Buy rental property. Purchasing rental property allows you to collect rent from tenants, hopefully in excess of your ongoing expenses. This results in a steady stream of revenue (and profitability) each month, assuming you choose the right investments from the beginning.
  • Invest in dividend-paying companies. Many publicly traded companies offer dividends to their shareholders. These (typically quarterly) distributions of profit grant you a steady stream of income while also enjoying the benefits of a healthy stock that tends to rise in price over time. If you’re not sure how to choose the right companies, you could also invest in a variety of dividend-paying stocks via an exchange traded fund (ETF).

Additional Skills and Experience

You never know when you might lose your job due to changes in demand, the limitations of the business, or other factors. Because of this, it never hurts to have a backup plan in place. Consider protecting your income in the future by learning a variety of different skills, and gaining different experiences you can use to pursue different careers in the future. Think about what interests you, personally, as well as what might be a reliable way to make money in the years to come.

These are just a few of the ways you can protect your income and make sure you maintain a stream of revenue even if your primary job is no longer available. Even baby steps, like setting aside a small amount of money each month, can make a positive difference.

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