One of the most popular posts on The Wisdom Journal is 26 Ways To Make Extra Money While Keeping Your Day Job. Many of the ideas in that article require cash seekers to start their own small business of sorts, from babysitting to plant maintenance to tutoring kids to “mining the miners.”. But there are at least three other ways to generate extra cash in your pocket.
- Start a business
- Work more
- Passive income
- Spend less
1. Starting a business – okay, we’ve got that one out of the way.
Starting a business takes a special personality type. It takes someone with the motivation and ability to handle the details involved in putting an idea into motion and the wherewithal to follow through. The time, effort, money and nerves that it takes to run a business (that has no guarantee of success) means that very few people will take this route.
2. Alter your work situation
If you can manage to get some overtime at work, a major promotion or raise, or take on a second job, changing your work situation DOES have a guarantee of sorts: you show up, clock in, and work and you’ll get paid. Whether you take on a second job, get a raise because you went back to school to get or finish your degree, or because you seized an opportunity to move up in the company, make sure your lifestyle doesn’t absorb your extra earnings. A great rule of thumb: save 50% of every raise or income increase you realize.
3. Go passive
No income source is completely passive. Everything requires some sort of effort from someone at some point (even an inheritance was earned in the past). Examples of “passive” income could be the interest earned on your investments, getting royalties for past work, or some sort of arbitrage. The key to making money through your investments is accumulation. The more you’re able to save, the more interest you’ll earn. Even if you can manage to get a 25% return, if you only have $500 in that investment, you won’t make much. Eventually it will make a difference, but it will take a while without major contributions on your part (maybe from that second job?).
4. Spend less
Sure, this is a way to increase the cash in your pocket. Before income taxes, Ben Franklin said “A penny saved is a penny earned” but today a penny saved is one and a half or two pennies earned due to the income tax (specifically forbidden in the original Constitution but amended by Congress in 1913). If you can avoid spending, you can stretch your dollars and put those “earnings” into your bank account.
One of the downsides of making extra money is, of course, taxes. In our progressive tax system, the tax loss resulting from entering a higher income bracket is not prohibitive, but it is discouraging. You work harder (and many times longer), but the returns on your efforts diminish as your income tax rate increases.
Don’t let it deter you though, especially if you set up a small business. Many times you can offset most of your income through business deductions and the legal avoidance of these progressive taxes but and still come out ahead.
Photo by re-ality