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Diversify Your Income – Better yet, Automate it

In response to The post, “Diversify Your Income” by Michael Janzen on his blog, Do It Yourself Freedom:

It seems to me that there are really two pieces of advice here. One is to diversify your income, and that can be done in various ways, as the author notes, the other is to automate your income. But automating your income is in no way necessarily implied in the advice to diversify it.

So, what are some ways in which a person can diversify their income?
Well, as the author notes, working more than one job. And this seems like a better idea in inverse proportion to the amount of time you spend on any one job. And it does make a kind of sense. If one of your jobs is waiting tables in an expensive resturant, and another is an 8:00am to 12:00 pm job in the receiving department of a sporting goods store, there is every chance that one of those jobs could go under for some reason, leaving your means diminished, but not wiped out. This is the same kind of risk that financial advisors usually try to help you avoid when they advise you to diversify your investments.

On the other hand, suppose you already work on a freelance basis. Perhaps as part of a band that plays in nightclubs, a photographer, or a graphic designer or illustrator of some type, or even as a housekeeper, You may still be tempted to do all or a majority of your work for one type of client, or even, if you have a client whose needs for your services are great enough, you work exclusively with that one client. I can see why someone might fall into that trap, it might seem to have all the simplicity and familiarity of a regular job. But as long as you’re doing all your work with that one client both the sense of security, which even for hourly workers is largely false, and your sense of independence as an independent contractor, are illusions. The advice to diversify in that case may mean to spread your work among additional clients, or learn the standards of a different type of client, so that you can continue to generate income by serving a different section of the economy if demand for your services in one section diminishes. For example, one person I associate with is the president of a small advertising production agency. I think of his company as mostly producing TV commercials, though I’m aware they do radio commercials, and websites too. He has been trying to branch into making industrial videos, such as for training within companies. I work with him, providing 3D animation and graphics.

The advice to automate your income is one that I see as entirely seperate. The ways of diversifiying your income that I’ve described above all require you to sell your time, which is valuable in proportion to your skill and experience. The president of the advertising company is in a somewhat different position, however than the person taking on a second job, or the freelance worker branching out to take on different clients or different types of clients, because, while he has made the decision to diversify, and take his company in a new direction, the actual video production, writing, shooting, editing, graphics and DVD duplication have mostly been delegated to other people, myself included.

As I think about possible ways of automating your income, I see these categories:

Intellectual property

Investments

Businesses

I apologize for being ignorant of the terms that money gurus, such as financial advisors, economists, investors or entrepeneurs may use. This is how I see the field of possibilities throught my untutored eyes.

Originally, I wrote machines instead of businesses, because I thought first of things like storefront websites and vending machines, and thought of owning a business with employees who were paid a wage merely as a special case of automation. Maybe delegation of effort is the central theme there. You can delegate tasks either to other people, or to automated processes. Notable things that come to my mind under this view of delegation are:

Vending machines

Storefront Websites

Coin-operated laundries, car washes, air pumps etc.

Hotels or trailer parks.

Blogs, or other advertising-supported websites

The common theme here are things that provide value and by doing so return income over time with a minimum of input. You have to manage them, but they allow you to multiply the value of your time. Or in other words, there is no limit to the value of hours you spend tending to these income-generating machines. In contrast to the types of investment vehichles I’ve usually heard financial gurus touting, these are within reach of almost anyone who isn’t living hand-to-mouth. My own parents rented out lots (though only one at a time) to people with trailer homes, lots adjacent to our own home, or even rented out the trailer itself that our family got started in. People with large enough houses can rent a room. People who own small cottages can rent them out as bed and breakfasts. My father also made a foray into the world of vending machines, though I don’t think that experiment made him money in the long run. A sobering fact that anyone thinking of getting into that line should consider, as with any business, not all machines that beg to have quarters put in them are going to fully compensate you for what you pay for them, or the effort you spend keeping them in working order. Yet evidently soft drink and snack machines make money for a lot of people with a minimum of fuss, to say nothing of electronic games, video or pinball, for instance, which probably require less care, and don’t even need to be re-stocked.

By investments I mean the usual financial vehichles that people think of as the province of wealthy financiers, or the kinds of things mature people do as part of a strategy to put something away for their golden years while they continue to sell their hours from nine to five until retirement. And the kinds of things people buy and sell for significant money which might be analagous to these kinds of assets.

In this category I see two main divisions, and a couple of commonalities.

The main divisions are the Guessing and Betting type of investment and the Interest model.

The Interest model is the most basic type that everyone takes advantage of in savings accounts, it also includes savings bonds. These work mainly over the very long term, though they may do a great deal of good to people who have a lot of money earlier in their life, yet it seems that when people are very wealthy they tend to invest in things where the rate of return is higher instead. There are many ways of making loans, and many ways of earning interest.

By the Guessing and Betting type of investment, I mean things like stock trading, futures trading, buying and selling. To me, this seems little different than buying coins or stamps for numismatic value, keeping memorabilia, hoping demand for it goes up, or collecting baseball cards, comic books or something of that nature with the hope that its value increases so that it can be sold at a profit later. To me, the terms Guessing and Betting have very negative connotations, especially in terms of financial planning, yet, it is obvious, even to me, that some people make fine livings doing each of the things I’ve mentioned above. But I am convinced that it isn’t for everyone. I’m unimpressed by day traders who base their buying and selling on the readings of charts, particularly, and I really do believe that one reason some of these things have the kind of popularity and devotion they do is because they provide the same kind of thrill as gambling. Yes, there are winners, but there are probably a heck of a lot of losers too. To try to act as a middle-man in any of these sectors I think it is importand to first know the market for the particular assets or goods you are dealing in, not just how to tell by how other people value them which way they are going to go.

I see buying a stock that pays shareholders a dividend as a very different category. This can mean buying a small piece of a big company. You have part ownership, and may have a vote on decisions regarding that company that you can cast yourself or delegate, and you get a fraction of the company’s profits. The differance between the price of the stock and what it pays you periodically may tell you something about whether people in that market value money in the long or the short term, or it may tell you something about whether the general expectation is that that company will be more successful in the future, or is going downhill. This may be found among other financial vehichles like savings bonds, futures, commondities and such, but it is like a special case of automated income from a business.

Intellectual Property is another way people can automate their income. I think most people are aware that best-selling novels are very lucrative, as is having a song on the top of the charts, or having a role in a popular movie, or having a song in a popular movie, or having your novel  made into a movie. You can also get royalties or similar fees in other ways, such as by licensing a patented invention, investing money in a production or recording, being a photographer or designing a t-shirt. Intellectual property has a bad reputation these days, partly because it is most obviously serves as a way that people who are already fabulously wealthy can keep getting paid for work they’ve already done. I have no doubt, that defending your intellectual property rights to anything you’ve produced could be more difficult today than in ages past, but there are at least a few ways that it can work for people who are not yet at the top of the various media businesses.

Anyone can write a book, and self-publishing is an option, including electronic publishing, and print-on-demand.

It is easy to submit photographs and illustrations to collections of stock images.

Photographers already enjoy copyright, allowing them to make additional prints of portraits, or any kind of thing they shoot-barring contracts to the contrary-though since the rise of digital cameras people’s expectations about the use of some kinds of pictures seems to be changing. For instance, my experience, and industry articles I’ve read suggests that there is a growing expectation among people that they be given digital copies of their wedding photos. Anyone looking to go into this field based on hopes of building a body of work that can be re-sold over and over would be best advised to avoid concentrating exclusively on portraits or special events, and become familiar with the variety of markets for pictures. In short, photographers should diversify their income.

It is much easier to work as a song-writer and get royalties, than it is to work as a performer. If you write songs, try to diversify your styles and subjects and form relationships with various types of artists.

Graphic designers or visual artists can take advantage of various types of publishing, such as selling prints, printed t-shirts or other types of printed items, like clocks, mugs and mousepads through net-based printing companies like Cafe Press.

If you can spend some time, or some disposable income creating something that continues to bring money back, even if a very tiny stream, then you’re ahead by that much. Next week you can put your time, your extra money, and maybe something from that stream together creating another asset, and thus eventually free yourself from dependence on your primary source of income.

I should note that I am in no way a financial expert. Most of the above reperesents knowledge, and often simply theories of my own that have grown from various sources which do not present specific or necessarily reliable information. Not even the existence of any certain kind of financial asset.

If there are any misconceptions you would like to correct, or other information you would like to add, then please comment.

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