Over the past decade alone, the economic environment in the United States has undergone massive shifts. From economic booms to economic busts. From the highest employment rates in history to the lowest employment rates in history. Not to mention interest and inflation rate spikes and dips across the board.
In a relatively short period of time, we’ve experienced everything an economy has to offer.
One important takeaway from this financial roller coaster ride is that protecting your income should always be one of your top financial priorities. Even more so, you must create both steady and multiple streams of income, along with plans to save and invest wisely to tide over any difficult periods.
Prior to the COVID-19 crisis, the rapid economic growth that took place over 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 state of the economy begins to re-balance.
It’s now more important than ever to prioritize your income as an integral part of your financial plan.
After reading this guide you will have a better understanding of the different types of income that exist, the state of household income in the United States, how to negotiate your way to earning a raise, popular side hustles, and more.
Table of Contents
- Types of Income
- Facts and Figures Regarding US Household income
- How Does Your Money Mindset Impact Earnings?
- Tips to Get a Raise
- Should You Consider a Side Hustle?
- Top Freelance and Side Hustle Opportunities
- Save First, Spend Later
- What Else Can You Do to Keep Up?
Part I. Types of income
In general, income is typically placed in three categories – active, passive, and portfolio income.
Portfolio income is considered a subset of passive income since it comes from your investments and you are not always directly involved. This includes royalties, dividends, capital gains, and interest. Because of this, we’ll focus on the first two; active and passive income.
Let’s take a look at these two types of income in more detail.
What is active income?
Active income refers to money that is earned as a direct result of the work you put in. Active income is the most common type of income and is typically thought of as trading time for money. In fact, active income remains the single source of income for the majority of the American population.
Below are common examples of active income:
A salary is a form of payment from an employer to an employee, that is often associated with a specific periodic basis. The most common example is working from 9am-5pm everyday, totalling 40 hours per week. Another way of looking at salaried income is bartering your years’ worth of skills and time for a set amount of money periodically.
2. Hourly wage
Hourly wages are paid to a large portion of the workforce from food delivery drivers and lab assistants to personal trainers. It’s important to note that hourly wages are not always associated with full-time employment. In fact, it’s very common to earn an hourly wage from side gigs and part-time employment.
For employees working as sales representatives or in other similar roles, commissions are both common and part of their active income. Commissions often have a high potential of offering a significant amount of cash at once compared to the previously mentioned types of active income. As a small example, real estate agents and brokerages get a percentage of the home value (anywhere from 2-6%) when the deals they are working close.
4. Other types of active income
While the above are common types of active income, there are several other forms of this type of income. Tips earned by bartenders, servers, and other hospitality-related roles is a prime example. Additionally, freelance and consulting services that often work on a pay-per-project basis are also included under active income.
What is Passive Income?
Passive income can best be described as money earned from assets which a person is not actively involved in.
Profits from a business you own, rental income from real estate, and profits from product sales are all passive income streams.
Passive income is becoming a very attractive form of income for people simply because it does not require active or direct involvement to earn it. However, there is usually some type of upfront investment needed in terms of time or money to acquire an asset that brings in passive income.
In most cases, there is a tradeoff that exists between active and passive income sources. To earn passive income, you typically need to divert your resources from activities that could bring in money immediately. Instead, you commit your time and effort with the hopes and expectations that you will earn an income at a later date. This can be referred to as the active income opportunity cost.
Below are common examples of passive income sources:
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. This is one of the reasons why money experts recommend making steady and consistent contributions to your retirement savings accounts.
2. Rental property income
Rental property income can come from both residential tenants who are renting living space and commercial tenants who are leasing property for their business and commercial activity. It’s common that rental property income is earned, and therefore paid, on a monthly basis.
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 blogs and individuals in the United States earn passive income year-round.
There are two common ways affiliates get paid. The first is through a pay-per-click basis. The second is through a pay-per-performance basis.
Affiliate income is the best way to passively make money from your blog. With the right audience size, you can easily monetize your site with relevant affiliate links and generate adequate affiliate income.
4. Display advertising
Display advertising is another common form of passive income. Similar to affiliate income, website owners and blogs get paid by placing advertisements on their domains and web properties. However, these website owners often get paid for simply showing these ads to their website visitors, hence the name ‘display’. The types of advertisers, rates, sizes of ads, and experience differ depending on the websites and advertisers.
5. Other forms of passive income
Other digital forms of passive income include creating information products and online courses. Digital avenues have become increasingly popular over the last decade because of the low barrier to entry for starting an online business and selling products and services online. These avenues offer opportunities to create six-figure incomes steadily. Like anything else, they only work if you put in the work. Don’t think for one second that it’s an easy way to earn six-figures. If it was, everyone would be doing it.
Which income source is right for you?
While determining the best type of income, it’s critical to take your financial goals, especially your long-term ones into consideration. Try asking yourself these three important questions:
- Do you want to continue working for the remainder of your career up until your retirement age?
- Are you willing to make additional sacrifices (time and opportunity cost) to earn additional income?
- Are you explicitly looking for avenues towards an early retirement where you can enjoy a similar lifestyle without having to depend on your savings?
If you answered yes to the first question, then you should focus on securing an active income that will help you stay focused on earning a steady income throughout your career. It’s important to remember that no form of income is guaranteed.
If you answered yes to the second and third question, then you might want to put some efforts towards building passive income sources.
If you answered yes to all three of the above, then it’s clear that you’ll need to find a way to balance both active and passive incomes to help you reach your goals.
Part II. Facts and figures regarding US Household Income
Household income is the combined gross income of all members within a household. This includes all sources of both active and passive income: regular wages, business income, investment income, and more.
According to the 2019 Census Bureau report, the median average household income in the United States is $63,179, meaning half of all households make more than this and half make less.
This median income value represents only a small, but virtually insignificant increase, from the prior year, whereas in each of the prior 3 years the median household income increased more significantly.
The average household income during 2019, however, was much higher at approximately $89,930. The bottom threshold of the top 1% of households was an astonishing $475,116.
The following chart depicts the median income in the United States in the past 14 years:
Household income is found to vary substantially depending upon the age of the person heading the household. Median household income tends to increase as the earning member inches towards retirement age, but begins to decline after age 55.
Part III. How does your mindset impact earnings and income potential?
Your mindset plays a critical role in every area of your life.
Mindset, specifically a negative mindset, is one of the biggest culprits of financial stagnation.
Self doubt in your ability to manage and earn money directly impacts your long-term earning potential.
With almost anything in business and life, there’s a simple formula. Our thoughts are known to control our emotions. And our emotions are what ultimately control or lead to specific actions. The goal then, is to develop a positive mindset in all things. This is equally as important when it comes to our personal finances.
Do you ever catch yourself thinking of any of the below?
- Am I really deserving of this raise?
- I won’t ever be able to afford any of these.
- If I had a way of making money, maybe I would do it.
- I am very bad at managing my own money.
- I can’t be trusted with my money.
If you answered yes, your money mindset requires some fine-tuning. These negative thoughts lead to negative affirmations which only result in negative outcomes.
Negative affirmations cloud your judgment, derail any bit of motivation you have, diminish your own self-worth, and leave you feeling terrible about your current money situation. All of which hinder the relationship you have with your money and any chance you have of increasing your income.
Below are a few steps you need to be taking to direct yourself on the right path:
Step 1. Work on your core beliefs
First and foremost, you need to get started on developing and defining your core self-beliefs. Core self-beliefs are the basic beliefs we have and embody about ourselves and our abilities when it comes to just about anything. They are the things we hold to be absolute truths deep down.
These beliefs determine how you perceive yourself, even though they may not be true.
Here are a few typical limiting beliefs that can restrain you from tapping into your full income-earning potential:
- I won’t ever achieve a six-figure income because I did not go to an Ivy League university or do not have industry credentials
- Becoming a millionaire is far out of reach and impossible. It’s never been done before in my family or friend circle
- I am destined to stay in the middle-class because my parents were never wealthy
- My parents are still working even throughout their retirement years which means I will need to as well
A pessimistic mindset is a guaranteed goal-killer. It can and will prevent you from formulating an income strategy and actively pursuing your goals.
By working on your self-beliefs and creating positive affirmations, you’ll be well on your way to believing in yourself and developing a much better relationship with your money, along with just about anything else.
2. Take a bet on yourself
Once you’ve worked on identifying and affirming positive self-beliefs, the next step involves flipping the switch and trusting yourself.
Trusting yourself with making a career change. Trusting yourself to go for that promotion. Trusting yourself to make important financial decisions.
Ultimately, you need to believe that you will succeed and take calculated bets. When you start believing in yourself, others will too, opening a whole new world of opportunities.
3. Think and focus on success
Have you ever noticed that the more you think of something, the more likely it is to take place or come true? You can thank the law of attraction for that. What you think is usually what you get. In other words, if you think you can, then you’re right. If you think you can’t, you’re also right.
Your ability to increase your income flow is limited to your thinking and mindset. If you constantly think positive thoughts when it comes to your money and the income you are earning, you will be able to focus on working towards positive outcomes.
Part IV. Tips to getting a raise
Getting a raise is one of the best ways you can increase your income consistently. At least when it comes to active income.
Oftentimes, the best way to get a raise is to simply ask for one.
You have your self-belief in check, and know that you deserve a raise, but something is holding you back from asking for one.
If this is the situation you’re finding yourself in, you’re not alone. I think the main reason that salary negotiations are difficult is because talking about money for most is a taboo. It’s not something that we’re primed or conditioned to talk about.
Here are proven tips that will help you negotiate your salary with your employer:
1. Know your worth
Before even entering any sort of salary discussion with your employer, it’s important to do your research and know your worth. Make sure you get a better understanding of the market rate and your individual worth.
Sites like Payscale, Getraised, and Glassdoor can prove to be very useful resources for getting to know what the current market rates are for just about any type of job that exists.
You can always use this as a bargaining chip, especially if you are in fact underpaid compared to market rates and roles in similar companies.
As a rule of thumb and something to be very mindful of, it’s important you never discuss your colleague’s salaries. Doing this could violate corporate rules and work against you in your negotiations.
2. Improve your marketability
Whether or not focusing on getting a raise is in your immediate sight, you should always work on improving your marketability.
This includes marketing yourself as a valuable resource in the eyes of both your employer, and external eyes as well.
One proven way of demonstrating this is by highlighting your accomplishments such as major projects you’ve worked on and completed for your organization. Additionally, if you work directly with clients, suppliers, or partners, any mention or praise from them in the form of a text or email is something that you should focus on collecting and storing in a personal folder.
3. Go above and beyond
Next, it’s important that you 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, commitment and your resiliency of having multiple things thrown your way.
The best way of doing this is to start taking action yourself, while also asking for additional tasks and ways of supporting the company’s mission.
It’s important to be very careful not to take on too much or overwhelm yourself. The last thing you want to do is find yourself slipping behind in your regular day-to-day tasks.
4. Improve yourself
One of the best ways to demonstrate you are ready for a new role and new responsibilities is to demonstrate your skill set, and improve your current skills. Take advantage of every opportunity that has the potential to improve skills and other areas. This can be done through various different ways such as taking online classes, attending seminars, reading books, and shadowing a mentor.
5. Tap Employee Benefits
Lastly, don’t forget to tap into existing employee benefits in your efforts to “get a raise” by grossing more in total compensation. While this might not technically be considered a raise, it’s also important to remember that any money saved is money earned.
You’d be surprised by the amount of Americans who fail to take advantage of their employer benefits, including the employer matching contributions to retirement accounts and health savings accounts.
Part V. Should you consider a side hustle?
First, let’s take a look at what exactly a side hustle is.
A side hustle is usually referred to as any type of employment in addition to your full-time job. Generally, this would include work that is freelance or piecework in nature, that provides supplemental income.
Side hustles can be a phenomenal way of increasing your income and earning additional money. Typically, side hustles are often things that people are passionate about, but this isn’t always the case.
Similar to passive income, starting a side hustle requires investing both your time and effort. In some cases, you may also need to invest capital.
So, what are some of the signs that will determine whether or not taking on a side hustle is a good idea?
1. Financial stagnation
It’s no secret that wages in the United States along with other countries have been somewhat stagnant for quite some time and they are not expected to grow any time soon. If you are looking for ways to maximize your income and pad your earnings, then taking on a side hustle might be worthwhile to explore.
2. Increasing cost of living
If you’re finding yourself feeling financially overwhelmed and having a difficult time staying on top of your payments, then you should definitely consider a side hustle. Inflation can be a silent killer and become very detrimental to both your current and future financial situation. The last thing you want to do is dip into your savings and retirement funds.
3. Two is often always better than one
There is a reason why the military and most successful corporations always have a backup plan ready. It is bad to be involved with single points of failure or weak links in the chain. You may witness the entire system crumbling by depending solely on your salary. The smartest investors spread the risk. For this reason, you should consider getting a side hustle to mitigate any future or potential income-loss risk.
4. Financial pressures
Have you found yourself in a situation where you have racked up credit card debt? Do you think your credit cards are going to be maxed out in the near future? Do you have planned future expenses are coming sooner than expected?
Whether your financial problems are of the past, present, or even future, earning additional income is a guaranteed way to improve your financial readiness.
Part VI. The best freelance and side hustle opportunities
Now that you have identified whether or not taking on a side hustle is in your immediate future, it’s time to explore some of the best freelance and side hustle opportunities that exist.
While the below isn’t an exhaustive list by any means, it’s a good starting point to help you consider your options and your next moves.
1. Driving for Uber or Lyft
Driving for Uber and/or Lyft has become a popular way of earning additional income. As long as you own a vehicle and have a clean driving record, it’s a pretty straightforward process. Uber and Lyft allow you to work on your own hours, while earning additional income on the side.
Make sure you set yourself apart by getting good ratings and reviews if you want to earn more in tips and rides.
2. Taking on tasks with Task Rabbit
Task Rabbit helps people hire ‘taskers’ to complete various errands and tasks for them. It’s known to be a great source of side income if you have a knack for handy work while having available time on your hands.
As you might have guessed, the number one task requested from the platform is hiring someone to put together IKEA furniture. But it doesn’t end there, other examples include picking up food for people, picking up their dry cleaning, and even walking dogs.
3. Provide teaching services
Digital learning and online education is becoming an increasingly popular method to acquire new skills and improve existing ones. If you have highly technical skills that others are looking to learn, you might be able to capitalize on opportunities to teach these skills.
Sites like VIP Kid and Wyzant are online tutoring portals where you can easily sign up and set your own hours and rates. Additionally, you can also create online courses on sites like SkillShare and Udemy.
The best part is that you don’t have to worry about filling your classes or looking for students. These sites will take care of that for you, which means you can focus on the quality of your content and education material.
4. Selling used items online
Selling used items isn’t a daunting process like it once used to be. Now, there are several sites where you can easily market and sell things online.
Amazon for example, is great for selling used textbooks and other goods. You can sell just about anything on Craigslist, OfferUp, or Facebook Marketplace. If you have a collector’s item and are in the mood for auctioning something, turn towards eBay.
At some point, you will eventually run out of items to sell, and so this should not be your preferred method of earning income. However, if you find yourself in immediate financial troubles, or in a place where you can easily earn a few hundred dollars, then this can provide you with ease of mind knowing that you will likely find a taker for your items.
5. Selling artwork and crafts
Etsy and Bonanza are excellent options if you have a passion for creating handmade crafts and items.
These two popular e-commerce sites make it extremely easy for just about anyone to set up an account, create an online store, and start selling their items right away.
Common items you’ll find on these two sites include: print material (posters), stickers, shirts, bags, pillows, blankets, house decor, and more.
6. Dropshipping various products
Dropshipping has become an extremely popular way for people to earn a passive income through a side hustle. Essentially, dropshipping is an order fulfillment method that does not require a business to keep products in stock. Instead, the store sells the product, and passes on the sales order to a third-party supplier, who then ships the order directly to the customer.
This allows online stores to maintain their presence, without worrying about keeping physical stock.
Shopify and BigCommerce are two well-known e-commerce platforms that allow anyone to easily create new online stores and drop ship products.
7. Renting your properties through Airbnb
Last but certainly not least on our list is renting your property, or rooms in your property, through Airbnb.
Whether you are renting your home as a vacation rental or a spot for people to quickly pass-through for a night or two, Airbnb is a known way for property owners to increase the amount of passive income they are earning.
You can also hire companies to manage the entire rental process for you such as Luxury Retreat and Invited Home. There is an extraordinary amount of money to be made from running a vacation rental. However, it does take some effort. If your home or property is located in a tourist destination, you might be surprised at how much you can earn by renting it out through Airbnb.
If the above doesn’t quite interest you, here are more than 80 ways you can earn additional income this year.
Part VII. Save first, spend later
The most tried and true way to keep your finances in order is simply by paying yourself first. This is the oldest and most proven money rule.
However, the challenge with saving first is that there is always someplace or some expense where your money appears to be needed.
When you’re just getting started with saving, it might even seem next to impossible. You have groceries, rent, car payment, student loans, and credit card bills to take care of. At the end of paying for those expenses, you’re finding yourself with little left over to tuck away for your savings.
But for most, that’s where the problem begins. We often look at what’s left over, rather than making sure we tuck money away first.
By paying yourself first, you establish good financial habits and quickly learn to make your finances a top priority. When you are confident that you can take care of everyday expenses and financial emergencies, you will feel motivated to grab your finances by the horns and earn in more ways.
How to pay yourself first
The best way to start saving is to make the entire process as painless and automated as possible.
The number one thing is just to get started. At first, don’t worry about the amount you are saving, rather the process of saving. If you’re unsure about how much you can save, start with 1-2% of your earnings.
After a while, focus on improving your savings rate along the way. Eventually, you will want to work your way up to a savings rate of 10-15% of your earnings. If you can save more, go for it.
When you’re getting started, there are two things you’ll want to do right away. The first, is opening a high-interest savings account, or a dedicated retirement investment account where you can invest in various types of funds, including ETFs, exchange-traded funds. The second, is setting up automatic transfers. These automated transfers will eliminate the time and work required to consistently add to your savings and investment accounts on a monthly basis.
The work is already being done for you and will make sure that you are paying yourself first, before anyone or anything else.
Part VIII. What else can you do to keep up?
One of the best things you can do is take a step back to get a better view of the bigger picture. This will provide you with a clear lens so that you can review things individually when it comes to your overall income and the goals you want to achieve.
It’s extremely easy to get caught up in the day-to-day minutia and overlook income earning opportunities. Having a career mentor, career counselor, or even an accountability partner to keep things balanced can be a great way to help you achieve your income goals in a short period of time.
Once you’ve taken the appropriate time to review your income and earning goals, it’s time to start creating an action plan on how you will achieve your desired outcomes. Remember, your income and the ability to earn income is an integral part of your financial plan so it’s important to make sure that your income goals align with your other long-term financial goals.
Your financial future starts today
Savology is a free planning platform where you can build a free, unbiased, personalized financial plan in about 5 minutes. Your Savology plan will give you action items to start working on as well as an overview of your current financial situation. After you have made some progress, Savology can connect you with some of the world’s top providers to help you accomplish your financial goals.