“Keep all your eggs in one basket, but watch that basket closely.” – Warren Buffett
This is one of Warren Buffett’s most famous quotes.
It is also one of the worst pieces of advice for anyone who is working on becoming rich.
My dad inadvertently took this advice with his own financial empire, and in one night lost everything when the main warehouse for his business burned down.
My dad’s business was valued at around $US3 million, which is north of $US20 million in today’s dollars.
We lived in a very nice house in Todt Hill, one of the most affluent neighborhoods on Staten Island, New York.
When my dad’s warehouse burned to the ground, all of that wealth disappeared into thin air.
Our family struggled financially for the next 15 years, trying to recover from that nightmare; struggling almost daily to prevent foreclosure on our home.
My dad told me later in life that he wished he had his eggs in more than one basket.
That would have been the smart thing to do, he told me.
In my five-year study of the daily habits of the rich and poor, I learned that most self-made millionaires generated their income from many baskets:
- 65% had three streams of income
- 45% had four streams of income
- 29% had five or more streams of income
Having multiple income streams makes a lot of sense.
When one stream is negatively affected by systematic economic downturns, of which you have no control, the other streams can come to the rescue and help you survive the downturn, without seeing your lifestyle dramatically affected.
Most people are not rich.
And coincidentally, most people have one stream of income — their job.
If you do not save and invest your savings in assets that generate additional streams of income, and you lose your job, you could soon find you and your family living with a relative.
Putting all of your eggs in one basket is simply a recipe for financial disaster.
If you put all of your eggs in one basket and that basket breaks, what do you do?
How do you create multiple streams of income?
- Save, save, save. Save 10-20% of your net income every year.
- Expand your means. Start a side business or side career that generates additional income.
- Create multiple baskets. Invest your savings and additional income into investments that generate passive income such as: residential rental properties, commercial rental properties, TICS, triple net leases, seasonal rentals (beach areas, ski resort areas, lake front areas), equity investments (stocks, bonds, mutual funds), annuities, permanent life insurance, royalty-generating property (timber, oil and gas), and boat rentals. If you can’t do it on your own, partner with others and keep building your portfolio of assets that generate passive income.
As I mentioned, three streams of income seems to be the magic number for the self-made millionaires in my Rich Habits study, but the more income streams you can create in life, the more secure will your financial house be.