The Ultimate Income Guide: How to Improve Your Income

Article Contents:

Over the past decade alone, the United States economy has undergone massive shifts. From economic booms to economic busts. From the highest employment rates in history to the lowest employment rates in history. And that’s to say nothing of the dramatic changes in interest and inflation rates. One thing that has been clear through all of this is the importance of improving your income. As you will learn in this guide, improving your income involves creating multiple streams of income and making plans to save and invest wisely so you can weather difficult periods. 

Before the COVID-19 crisis, the rapid economic growth of the last several years created an open market for side hustles and secondary income streams. Now, it’s time to start capitalizing on these opportunities once again as the economy begins to right itself. 

It’s now more important than ever to prioritize your income as an integral part of your financial plan.

Types of Income

Many people split income up into three categories: active income, passive income, and portfolio income. 

Portfolio income is important as it includes royalties, dividends, capital gains, and interest. However, most people consider portfolio income a subset of passive income, so we will just focus on active and passive income for this guide.

Active Income

Active income refers to money that you earn as a direct result of work. Active income is the most common type of income and the only source of income for most Americans. Here are some examples:

1. Salary

Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed. Salary is commonly paid in fixed intervals, for example, semi-monthly payments of 1/24 of the annual salary. This type of employment is often called “exempt employment” and generally applies only to full-time work.

2. Hourly wage

Hourly wages are the most common form of active income. For this type of income, there is a set amount of money or compensation the employer agrees to pay to the employee for each hour of work performed.  Hourly wages could apply to full-time employment or part-time work. In fact, it’s pretty common to earn hourly wages from side gigs and part-time work.

3. Commissions

Commissions are most common for employees working in sales or other related fields. In these cases, an employer agrees to pay employees a portion of the profits from their sales. For sales representatives, commissions can make up a significant portion of their total income, and their employers often set up their compensation structures with this in mind. For instance, they might have a lower base salary than another salaried employee, but they might earn the same or more through commissions.

4. Other types of active income

While the income sources listed above are the most common types of active income, several other forms of active income are less common, the first being tips earned by bartenders, servers, or other hospitality-related workers. Another less common example of active income is people who work in freelance and consulting spheres who get paid on a per-project basis. 

Passive Income

Passive income is money earned from assets that may not require active work or involvement to generate that income. Profits from a rental property you own, earnings from a limited partnership, and advertising revenue are all examples of passive income streams.

Passive income appeals to many people because, as the name implies, it does not require active involvement. The caveat here is there is usually some type of upfront investment required. This investment could be time or money, or both. The bottom line is that acquiring an asset that brings in passive income is not a passive affair right from the get-go. 

Common examples of passive income include:

1. Interest earned from investments

Interest or dividends earned from your investments is one of the most common types of passive income. It can also be one of the most powerful forms of passive income due to the long-term impact it can have on your wealth and overall net worth. For this reason, money experts recommend making regular contributions to your retirement savings accounts and making wise low-to-moderate-risk investments.

2. Rental property income

Rental property income can come from residential tenants renting a living space, but it can also come from commercial tenants leasing property for business and commercial activity.

3. Affiliate marketing income

Affiliate marketing income is a unique form of digitally sourced income and refers to the income earned from referral commission. This is how millions of bloggers and other online creatives earn passive income year-round.

Essentially, a brand gives the creator a unique link to a brand’s product which the creator uses in a blog post or a video description. Then, each time someone clicks the link or buys something from the site through that link, the creator gets a small commission.

With the right audience size and advertising partnerships, you can easily monetize content with relevant affiliate links and generate passive income in this way.

4. Display advertising

Display advertising is another common form of passive income. Like affiliate income, creators get paid to display advertisements for products on their domains and web properties, hence the name “display advertising.” Ad types, rates, size, and overall customer experience vary depending on the website or advertiser. Still, generally, creators are paid just for displaying the ad on their site, regardless of clicks or performance.

5. Information Products and Online Courses

Creating information products or online courses is another way people generate passive income. Digital content sharing tools like Skillshare and Patreon have become increasingly popular over the last decade because of the low barrier to entry. These avenues offer some people the opportunity to bring in six-figure incomes consistently. Like anything else, however, these methods only work if you put in the work required to get them off the ground. If it were an easy way to earn six figures, everyone would be doing it.

Which income source is right for you?

When determining the best income source for you, it’s critical to consider your long-term financial goals. Try asking yourself these three questions:

  • Do you want to continue working for the remainder of your career up until your retirement age?
  • Are you willing to make short-term sacrifices to earn additional income in the long term?
  • Is your goal an early retirement where you can enjoy a similar lifestyle without depending on your savings?

If you answered yes to the first question, then you should focus on active income. Securing active income through one of the sources listed earlier in the article will help you earn steady wages throughout your career and help you minimize risk. 

If you answered yes to the second or third question, you should put some effort into building up passive income sources if you haven’t already.

If you are on the fence about all three of the questions above, then you’ll need to put some thought into how you might find a balance between active and passive incomes to help you reach your goals.

Improve Your Mindset to Maximize Your Income

Experiencing self-doubt and questioning your ability to manage and earn money directly impacts your long-term earning potential. Do you ever catch yourself having any of the following thoughts?

  • Do I deserve this raise?
  • I won’t ever be able to afford the things that my family needs.
  • I can never be trusted with money.

If you have had thoughts like the ones listed above, your money mindset could use some fine-tuning. These negative thought patterns lead to negative affirmations. Negative affirmations can cloud your judgment, derail any motivation you have, diminish your self-worth, and leave you feeling terrible about your money situation. All of this hinders your relationship with money and stunts your ability to increase your income. 

Below are a few steps you can take to move toward a healthy place with money:

1. Work on your core beliefs

Core self-beliefs are the fundamental beliefs that we have about ourselves and our abilities—what we hold to be absolute truths deep down.

Whether or not they are true, these core beliefs determine how you perceive yourself. It is easy to feel down on yourself if you are struggling financially, but a pessimistic mindset is a guaranteed goal-killer. 

By working on your self-belief and creating positive affirmations, you’ll develop a better relationship with your money and have the self-confidence you need to reach your goals.

2. Take a bet on yourself

Once you’ve identified and affirmed positive self-beliefs, the next step is to believe those affirmations and trust yourself to make good money decisions. That could mean trusting yourself to make a career change or going for a promotion because you believe you deserve it. Whatever it is, ultimately, you need to believe that you will succeed and take calculated risks. When you believe in yourself, it makes it easier for others to believe in you, opening a whole new world of opportunities.

3. Focus on success

Have you ever noticed that the more you think about something, the more likely it is to manifest itself in your life? You can thank the law of attraction for that. In other words, if you believe you can do something, then you’ll figure out a way to do it. On the other hand, if you don’t think you can do something, then you’ll never be able to do it. 

Now, this is not to say that the only thing limiting your earning potential is your mindset. Sometimes, you have to overcome or live with actual barriers, and those are important to recognize. However, your ability to increase your income flow is limited by what you think about and whether or not you believe it can happen. If you are constantly thinking positive thoughts about your money and the income you are striving for, then the likelihood of positive outcomes is much higher.

Getting a Raise

If, like most Americans, you are earning hourly or salary income, getting a raise is one of the most effective ways to increase your income.

Some organizations have a predefined raise schedule, but often, the best way to get a raise is to simply ask for one. You may be thinking, “easier said than done,” and that much is true. However, it is doable if you go in with a plan. And remember, the worst they can do is say no. 

Here are four tips that will help you negotiate a raise with your employer:

1. Know your worth

Before entering into any salary discussion with your employer, you must do your research and know your worth. This means knowing how much other people in your industry with the same experience are paid. Sites like Payscale and Glassdoor can prove valuable resources for understanding the current market rates for your job.

Knowing your worth is important because you can use it as a bargaining chip when negotiating a raise, especially if you are underpaid.

While discussing general market values is a good strategy for negotiating a raise, avoid discussing your colleagues’ salaries. Doing this could violate corporate rules and work against you in your negotiations.

2. Improve your marketability

Whether or not a raise is an immediate priority for you, you should always be working to improve your marketability. Improving your marketability involves positioning yourself as a valuable resource to your employer and making yourself attractive to external recruiters as well.

Take advantage of every opportunity that has the potential to help you improve your skills and expand into new areas. Take online classes, attend seminars, read books, or see if you can shadow a mentor. There are no limits to how much you can improve yourself, and there are endless ways to get there. 

As you gain new skills and improve the ones you already have, be sure that your resume and social profiles reflect those skills. Having a solid resume and professional presence on social media ensures that people in or out of your company will be able to see the value you bring.

3. Go above and beyond

Next, you must show your employers and direct managers that you deserve this raise. By going above and beyond for the company, you’ll be able to prove your work ethic, your commitment, and your resiliency in the face of multiple projects.

Don’t wait! If you have extra time, be proactive about asking for more tasks and finding additional ways to support your company’s mission. On the other hand, make sure you don’t take on too much, or you may get overwhelmed and find yourself slipping in your regular day-to-day tasks—not a good look for someone who wants a raise.

4. Tap employee benefits

Lastly, don’t leave money on the table by not tapping into existing employee benefits. Is this technically a raise? No, but money is money, and employer match programs for retirement plans are nothing to sneeze at. With some contribution match policies, you can quite literally double to contributions you are making to your retirement accounts. This makes it significantly easier to save for retirement, even if your pre-retirement salary doesn’t actually increase. 

Pick Up a Side Hustle

A side hustle is work you do for income that is secondary to your primary source of income. Generally, this includes freelance work or other irregular, often piecemeal work that provides supplemental income. For many, side-hustles involve a hobby or trade they are passionate about. 

Side hustles can be a great way to increase your income. Like passive income, side hustles often require that you invest your time and effort at the outset. In some cases, you may also need to invest capital. However, in the world of Uber, Doordash, and the like, there are plenty of side-hustles that anyone can pick up.

Pay Yourself First

Paying yourself first means prioritizing your savings. Doing this helps you stretch your current income farther than you would have thought possible. If you wait until you’ve already spent your way through your entire paycheck to think about savings, then you likely won’t have much, if anything, left over to save.

It might seem scary at first to put savings aside before managing your other expenses, but as long as you have a working budget, you don’t need to worry about running out of money later—quite the opposite. The more you have in savings, the better positioned you will be in the case of an unexpected expense.

How to pay yourself first

First, just start doing it. As you begin saving, don’t worry about how much you are saving. Just get used to setting aside money every time you get paid before you do anything else. If you’re unsure how much you can save, start with 2% of your earnings.

As saving becomes a habit, focus on gradually increasing your savings rate. Eventually, you will want to get your savings rate up to 10-15%.

When you’re getting started, there are two things you can do right away that will make saving easier and maximize your returns. The first is to open a high-interest savings account or a dedicated retirement investment account. The second is to set up automatic transfers. The more you can automate your money transfers on payday, the harder it will be to spend money you should be saving.


As you consider your income as a whole, one of the best things you can do is take a step back and look at the bigger picture. A personalized financial plan from Savology can help you with that. You can get a comprehensive view of your finances in just a few minutes, then use those insights to set goals and take needed action. From there, you can further understand your income through the Improve Income Module.

It is so easy to get caught up in the day-to-day minutia of your bank account balances and overlook income-earning opportunities. Having a career mentor, career counselor, or even an accountability partner to keep you accountable can be a great way to help you achieve your income goals. 

Once you’ve taken the appropriate time to review your income and earning goals, it’s time to start creating an action plan for how you will achieve your desired outcomes. Remember, your income is integral to your financial plan, so it’s essential to ensure that your income goals align with your other long-term financial goals.

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Article Author:
Tim Hecht

Tim Hecht

As VP of Engineering here at Savology, Tim is responsible for building the financial planning engine and making sure that you have access to the best and most accurate financial plan. Tim is passionate about personal finance and finding ways to help every household across the country get access to quality financial advice they deserve.
Article Author:
Tim Hecht

Tim Hecht

As VP of Engineering here at Savology, Tim is responsible for building the financial planning engine and making sure that you have access to the best and most accurate financial plan. Tim is passionate about personal finance and finding ways to help every household across the country get access to quality financial advice they deserve.