1. Invest in It
Your human capital is the total monetary value of your skill-set, expertise, education and ability to interact and connect with others. The more you have of each, the higher the value you can typically command. To invest in your income, advance your education and knowledge. What skills or certifications could you acquire to enhance your value or diversify your experience? Are there conferences or training events that you could attend? Are you aware of trends, revenue sources and markets for your company or product? Do you know your company's competitors? Spend some time, effort and a bit of money investing in your personal and professional growth.
Even though your ability to earn an income generates significant value, many people don't protect that ability. It's not as risky as jumping out of an airplane without a parachute, but it's not good to be walking around without protection. As a financial planner, time and time again I see gaps in coverage, no coverage or employees not taking full advantage of employer-provided benefits. According to the Council for Disability Awareness, a nonprofit dedicated to educating Americans about the risks of experiencing an income-interrupting illness or injury, just over one in four of today's 20-year-olds will become disabled before they retire. Many people perceive disabilities to be caused by accidents, but in reality back injuries, cancer, heart disease and other illnesses cause the majority of long-term absences from work. How will you and your loved ones replace your income if something happened to you? Would you be prepared for a reduction in lifestyle and savings? Consider ways to protect your income through disability insurance and life insurance.
3. Track It
At the end of each year, document your compensation and your position. Compare this number to previous years and to similar positions in your city, as listed on websites such as Payscale or Glassdoor. Documenting your pay will help to pinpoint times when you may be underpaid and will give you discussion points for performance reviews.
4. Manage It
Having an established spending plan to help you manage inflow and outflow will allow you to allocate funds toward both your present and future goals. Be cautious of anything you're spending beyond your means and use credit wisely, since anything you're purchasing with credit today is being deducted from future income. Setting yourself up to manage your income successfully will ensure your credit score stays in a good range and can save you money down the road in lower interest rates.
5. Grow It
Growing your income can happen in a variety of forms.
- Learn what it takes to advance your salary within your current position or company.
- If you are capped out in your position or company, establish a side hustle. Can you offer services as a consultant or personal coach? Do you have a skill that will allow you to sell a service or product online on a site like Etsy?
- Save for your future and stock funds into retirement plans. The earlier you start saving, the better, because your money will have more time to take advantage of compounding interest, resulting in more funds for your future self.
Last but not least, one important step in optimizing your income is to hold onto it. If you're spending all you're bringing in each month, chances are you're not setting and working toward goals for yourself and you're also not setting yourself up for a successful financial future. Make sure you're keeping money for yourself in a rainy day fund (three to six months of expenses set aside), for your retirement and for other short- and long-term goals along the way. Pay yourself first.
Mary Beth Storjohann is a certified financial planner for Gen Y. She created Nine Steps to Workable Wealth to help you make smart choices with your money.