Consider setting a goal to increase your income by 5% this year
The income you make each year can have a direct effect on every part of your financial future, including your savings, your retirement and your ability to pay down your debt. Since your income is so critical, why not try to make as much money as you can? To get you started, consider setting a goal to increase your income by 5% this year.
Is a 5% increase in income realistic?
If you are a non-exempt employee (not eligible for overtime pay) working for a company or corporation, your salary is set and any increase you may desire is likely out of your control. This may make setting goal of increasing your income by 5% this year seem unattainable.
But like many similarly employed Americans, you may likely receive an annual salary increase from your employer at the start of each fiscal year. When you view this increase as an integral part of reaching your goal of 5%, this increase - which averaged 2.9% on 20141 - means that you may start the year having already achieved 40% - or even upwards of 60% - of your goal!
Why set a goal of increasing your income by 5%?
Another way to look at this is how much money you may make during your working years. And a small percentage change each year – the difference between 2% and 5% for example -- can make a big difference over time. Consider this hypothetical example:
Camila is 30 years old and makes $75,000 per year. She works for a company that gives employees a 2% salary increase each year. Assuming she stays with the company until retirement at age 67 – and does not receive any other merit or salary increase – Camila could potentially receive over the next 37 years a total cumulative income of about $4 million. If Camila was to take steps to increase her income by another 3% -- or 5% total – each year, by the time she retires at age 67 she will have generated about $7.5 million in cumulative income, or almost twice as much.
Of course, the above hypothetical does not take taxes or other factors into consideration, but it is just used to show the difference even a small percentage increase can make. And also let’s not forget the value of your income isn’t always measured in dollars and cents. Your income helps fund all facets of your life including your home, your family and your contributions to your community. Protecting your ability to earn an income is key because your income could be the basis for everything you may want to achieve in life.
What can you do today?
To increase your income by 5% this year, you probably don’t have to run out to find a second job. But you do need to assess your current situation and seek out opportunities. For example, have you discussed tax minimization strategies2 with your tax advisor? Is there a hobby or other personal effort that you are engaged in that could be monetized? Do you have anything – a spare room for example - that could generate additional income for you and your family? (after all, we do live in a so-called ‘sharing economy’ these days.)
Increases in income, especially when they are received in lump sums, can easily be misspent. All too often we see these extra ‘pay-days’ as an opportunity to treat ourselves. But it will be better over the long term if these increases are considered part of your regular income.
Regular income is money that you can anticipate, allocate and budget for – all with an eye towards helping you reach your financial goals. As such, any additional income could be used to bulk up your emergency savings account, or for targeted debt payments (those with higher interest rates)3, or it can be used to add to your retirement savings. Your MassMutual financial professional can help you determine what is best for you.
Ready, set, change.
Consider setting a goal of increasing your income 5% this year, and then change the question you’ve been asking yourself; instead of “How much will I make this year?” ask yourself, “How much money could I potentially make this year?”