small income diversification reduces the size of your retirement pot

These small guys all add up to a veritable force!

When you start to learn about investing, one aspect that quickly becomes apparent is very important, is diversification.

But do many investors think about income diversification? I would bet they don’t.

I would bet that in the main they are all about getting a big pay packet from a corporate job and trying to stuff as much away into their investment accounts, at which stage they will start to worry about the diversification factor. This obviously works well until the day they get canned.

I started to think about diversifying my income away from my day job a while back by trying to get some side gigs in the software development world, but you needn’t go anywhere near to that trouble to earn a bit of extra income on the side. In fact I bet most of you are already doing the things I mention in the table below!

But the key point is that it occurred to me, what are these small sources of extra income providing, in terms of helping us retire early? They are possibly being overlooked by all of us when calculating our magic number: the size of the stash at which we’ll feel comfortable saying sayonara to the day job and strutting off into the sunset.

size of stash replaced by small income diversification table

Below is the table for our “extra income” for 2015, with an extra column which is “Replaces size of stash”

You need roughly 25x your yearly expenses to retire, therefore if you receive any extra small income it is safe to say it will reduce the stash you need by “the extra small income x 25”. This is how we are calculating the “Replaces size of stash” column.


Total earned per year Replaces size of stash Notes
Interest TSB L + Cashback 54.84 1371 1
Interest TSB A + Cashback 47.76 1194 1
Interest Santander 111.72 2793 1
Cashback Santander £0.00 £0.00 2
Cashback CCs £100.00 £2,500.00 3
Solar Panels £566.05 £14,151.25
Gifts £235.00 £5,875.00
Sold stuff £194.05 £4,851.25
Refunds £0.00 £0.00
Investment Income £0.00 £0.00 4
TopCashback £400.00 £10,000.00 5
Other £318.92 £7,973.00
Totals 2028.34 50708.5
  1. As my figures only go up to October (10 months) I took the average monthly interest payment and multiplied it by 12 to get these figures.
  2. It was more than this but the Santander 123 account charges £2/month, going up to £5 soon, which cancels out any cashback so I’ll estimate this at zero.
  3. This was actually far more this year but it was because we built that up over the previous year. I therefore estimated £100/year as a guideline estimate which I think is about fair (£10,000 spending x 1%)
  4. This was a large positive but not including it in small income diversification, because, well, it’s just not that :p
  5. This was about £100 in cash so far, but I’m ramping this up by another £300 because you should easily be able to get that much more by doing the Tesco Clubcard hack and then converting them wisely into things you would have bought anyway and therefore reducing your overall spend.

If you want to see the spreadsheet with the original figures you can look at it here.


the tenets of personal finance hacking go a long way

As you can see from my lovely table, we can actually replace just over £50,000 in “proper” investments just by following a few basic tenets of financial engineering:

  • Carrying a bit of money in a decent interest paying current account, or two (e.g. Santander and TSB). Most people probably do this anyway as their emergency fund.
  • Running all purchases through cashback credit cards (and always paying the full balance off each month!)
  • Running all purchases through a cashback website such as TopCashback* 1
  • Asking for money for christmas and birthdays – OK it’s not for everyone that one 😀 but if you do, it all adds up (don’t spunk it on spurious “wants” though!)
  • Selling your unwanted items on eBay/facebook/craigslist to reclaim some of their value back, rather than just taking it down to the dump.
  • Obviously Solar Panels are a good idea if you can get them but they aren’t especially an “easy” day to day thing to do
  • “Other” here for me turns out to be gambling this year, which I obviously wouldn’t recommend anyone do! But the point is that most people can think of something where they can earn an extra few hundred quid per year on.

Bottom line: If our spending was around £25,000 per year then that means I could quit work 2 years earlier than I had previously thought without taking these small income diversifications into account. Which is great! 🙂

(I guess technically there is two of us so it would only take 1 year off the early retirement schedule each, still, not to be sniffed at!)

Of course you could just use this as another safety net for the 4% rule because you may not think that it is bullet proof enough. This all depends on how comfortable you are with risk, and how flexible you can be in terms of earning a real crust again once you’ve kicked the cubicle farm job to the curb. (i.e. if the market tanks do you want to work in Asda stacking shelves to cover any short falls in your portfolio or not?).

That’s all up to the individual of course but the point remains that these small income boosts are not to be ignored either way!



So there you have it, small habits do really add up quickly into larger benefits, it is the aggregation of marginal gains in action.

Small amounts of income do really add up quickly into big time savings, and the small figures are multiplied out into huge ones by the inverse of the 4% rule which is the 25x spending rule.


As I often do I’ll finish off with a few questions:

How much does your small income diversifications add up to?

And did you work out how much earlier you can retire because of it?

Any other quick wins to gain some extra income I’ve missed out here?

Let me know in the comments!


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