Jul 29, 2013

Principle 11: Work to Maximize Your Income

In today's rapidly changing world we have a tremendous amount of choices to make with regards to how we earn our incomes.  It is easy to fall victim to "paralysis by analysis," and if you're anything like me, choosing a career or feeling satisfied with your current level of income is a topic of constant concern.

If you've read any number of my previous posts, you'll know that my recommended path to wealth creation is the utilization of tax advantaged space to achieve our financial goals.  Luckily, these accounts are available to both self employed and W2 employees.

Increasing Income as an Employee

Let's face it, some people have what it takes to be an entrepreneur and some don't.  As I peruse the forums over at Bogleheads.org, I've found that many wealthy contributors have achieved great levels of success without ever owning their own company.  Self employment has been widely accepted as "the American Dream" as many feel it is one of the only paths available to becoming wealthy.  This is not true.

Earned income from employment, or trading one's time for money, can be an incredibly lucrative way of building wealth, and what follows are a few "tips" for increasing your household income.

1. Spend Less

One of the easiest, most efficient, and thereby the 1st item on this list of ways to increase income is actually to spend less.  This has the added benefit of avoiding being moved into higher income tax brackets, and does not require additional hours traded for money.  This does require sacrificing a few luxuries (possibly eating out, keeping up with the latest fashions, etc.) but the added disposable income will allow investors the opportunity to route more money to tax advantaged accounts to one day replace their current sources of income.

2. Pick Up an Evening Job

My Wife and I have been thinking about starting a family lately, and know this will bring some changes to our finances.  We decided that until my wife goes back to work, I'll pick up an evening job to make up for lost income; probably 2 to 3 times per week.  Luckily, we live in a vacation destination so finding a position which earns a net of $100 or more in an evening is easy to find.

3. Ask for a Raise

This is a highly discussed topic, and I'll begin by offering a great link to Ramit Sethi's contribution to the Huffington Post with How to Negotiate Your Salary (be sure to watch the video).  It may just be the jumpstart you need to get in front of your boss and ask for more compensation!

My overall take on the subject is to first make sure your company is in a financial position to give salary increases.  One of the worst things you can do as an employee is to ask for a raise when other employees are being laid off due to lack of profitability.  This is the quickest way to get fired I know of, aside from selling company secrets to China.

Take the time to read the transcripts of a recent earnings call on seekingalpha.com, or check out the ticker symbol over at Yahoo Finance.  Here’s a tip: If you see a lot of red and minus signs before the numbers, you’re better off waiting 12 to 18 months.

Next, put together a bullet point overview of what you have ACCOMPLISHED and any relevant skills you've developed since last discussing your compensation.  Be sure to keep this to no more than a half a page and bring a copy to your meeting with your employer. 

Prior to meeting with your employer, determine the average salary for similar positions and experience taken from salary.com.  With this information in hand, you'll have everything you need to set an in-person meeting with the salary "decision maker" at your organization.

A simple email for you to use to schedule this meeting is as follows:

Hi Mr. Doe,

Would you be available to meet sometime next week?  I'd like to discuss my current compensation at your convenience.  I know you are very busy, so I appreciate your taking the time to meet with me on this.

Tortoise Banker

This is a high stress conversation for many people, so preparation is key.  When you get in front of your employer, start by thanking them again for taking time away from their other responsibilities.  The conversation should revolve around your current achievements, and the desire to better align your compensation with the contributions you are making to the organization.

If the conversation doesn't end with a result that is satisfactory to you, be prepared to ask for examples of what you can do to reach the targeted level of compensation, or achieve the appropriate rating on your annual review that would result in a satisfactory raise, (i.e. exceeds expectations, or outstanding).

A recent poll of my twitter followers recently churned up some excellent advice.  The author of DebtBlag.com had recommended we "Look comprehensively at our compensation.  If more salary isn't an option, ask for additional assistance with health insurance premiums, stock options, a company car, or signing bonuses." *This may only work for small to mid-sized companies.

4. Change Careers to Something "In Demand"

I began this post by commenting on our rapidly changing world.  It's amazing how one day, a particular vocation can be in high demand and the next day it has become obsolete.  Some jobs that come to mind:

1. Librarian
2. Postal Worker
3. Camera Equipment and Photo Development Retailers

A quick Google search will offer many ideas to those currently in "low-demand" fields, and Mr. Money Mustache gives us a great list of 50 Jobs Paying Over $50,000 Without a Degree.  Do a self assessment to see if switching jobs makes sense for you.  You'll be in a much better position to ask for more compensation if you are working for a successful company in a "high demand" industry.

For Self Employed Investors

I was an Entrepreneurship major in college and feel that starting a business is a fantastic way to build wealth.  If done successfully, expected yields can be well over 30% annually, compared to the 8-10% expected returns of equity based index funds.  As long as the entrepreneur understands their market, risk, and has the "fortitude" to be self-motivated and handle a lot of multitasking, I say go for it.

I will not go into different types of businesses to start in this post, but will share that starting and owning a business has a unique benefit that is often overlooked.  Income earned from operating a business is handled quite differently than W2 income, in that the entrepreneur can deduct all expenses BEFORE paying taxes, where the employee has taxes taken directly out of their paycheck.  This detail is enough to make a BIG difference in the take home income of families with small business owners.

Entrepreneurs also have the option of investing in SEP-IRAs and Solo 401ks to take advantage of tax-deferred growth. 

Rent Out a Room

This is an EXCELLENT way to earn more money for anyone that owns a home.  Post an ad on Craigslist offering a room for rent and you will likely get several calls in the first week.  Research the "going rate" of similar spaces and be sure to do a credit check on any prospective tenant, as well as get a feel for their personality style to make sure your home remains a comfortable environment for you and your family.

Start NOW

This list of ways to increase your income barely scratches the surface of all the options available to you.  Ultimately, steps need to be taken to avoid the opportunity cost of being unemployed, even for short periods of time, as unemployment can put a massive dent in your financial success. 

An investor’s level of income is an incredibly important variable when seeking to build wealth steadily over time, but always remember the timeless adage, “It’s not what you make, it’s what you save.”

Stay Wealthy My Friends,
                                                    Take Me to Principle 12:


  1. That is a great list. I think you almost always have more growing room asking for a raise of promotion than picking up an extra shift at night, but it may be slow and while you are working hard for a maybe raise, nothing is certain.

  2. Love this list! I'm always looking to increase my income.

  3. I work at a small company. My only concern would be how it looks to other employees if you get visible benefits. Better parking spots than the person 3 feet to your left? Might be awkward. Definitely something I've considered, but I do think I have it pretty well regardless.

  4. These are great tips. I especially like the "change to a job in demand." It's a good idea to research what's up and coming in the employment field - especially for young people heading off to college. Librarians are definitely becoming a limited field - both in education and in the public sector.