It doesn’t take a rocket scientist to realize you ultimately have two options to pay off your debt and achieve financial independence. You either increase your income, or you decrease your spending. For most of you, the answer lies somewhere in-between.
As of 2014, American consumer debt has surged to $11.7 trillion dollars. The net result? The average U.S. household owes $154,360 in mortgage debt, $33,600 in student loan debt, and $15,200 in credit card debt. It doesn’t take a rocket scientist to realize you ultimately have two options to pay off your debt and achieve financial independence. You either increase your income, or you decrease your spending. For most of you, the answer lies somewhere in-between.
Although significantly important, too many blogs and personal finance articles place too much emphasis on reducing your debt without addressing the equally compelling option of increasing personal income. The key to success with this strategy is to raise your monthly pay quicker than your level of debt rises. Note that this does not imply that raising your income will be free nor that it will be “easy”, simply that increasing income rate faster than the rate of debt, you will ultimately end up with a monthly surplus. Allocating resources to this strategy properly will thus enable you to develop a rinse-and-repeat method that will gradually pay off any outstanding debt. Furthermore, should you develop a highly lucrative opportunity, additional income could be made by outsourcing the work and allowing freelancers to make money for you!
So, what are some (realistic) options to increase your income in the next 60 days?
1 – Get a second (part-time) job
The most “conventional” approach to earning additional income, a second job offers some highly compelling advantages that often significantly outweigh the effort of working multiple occupations. First and foremost, an hourly job not only provides a new source of income, but it also provides a safety net should your primary career experience an unexpected bump in the road such as reduced hours or layoffs. In addition, a second job also offers a consistent rate of return, such that you work a number of hours each week, and are paid a fixed sum in return for your efforts. While it is expected that you maintain a certain level of professionalism and work ethic, your pay for a part time job generally does not hinge directly on your ability to sell products or services to end users. Lastly, there may be other benefits such as health insurance or retirement benefits that you may not have access to at your primary occupation.
To locate local part time jobs, most people often turn to Craigslist due to the biggest variety and most up-to-date postings for your area of expertise. While you may be able to find both hourly and “one off” jobs through this type of service, most respectable companies that hire for long term positions will list their openings on major job boards such as Monster or Indeed. Furthermore, you will likely find that your specific skills are a better fit for these quality positions which often offer a higher wage than typically found through less reputable sources.
2 – Get a raise
Depending on your personality type, you may see this as one of the more “uncomfortable” strategies for increasing personal income levels, simply asking for a raise is by far the quickest approach to an improved lifestyle. Most employees fail to recognize that their job is simply an ongoing negotiation with their employer, whom will likely pay them the least amount of money possible while maintaining your services. Most workers fail to properly negotiate their starting salaries and are thus at a disadvantage for the remainder of their career.
For example, let’s look at two workers, named Adam and Brian, whom both work the same job at the same company. Adam is able to properly negotiate a starting salary of $50,000 while Brian accepts his first offer for $47,000. Assuming an annual raise of 4%, after a total of 20 years, Adam will actually make more than $6,000/year more than Brian for the exact same work! If Brian were to respectfully approach his employer and ask for a raise, he could easily see an immediate return of $6,000 simply by opening a fair and honest negotiation for his services.
Of course, in order to receive a raise it is necessary to approach the topic with grace and humility. No negotiation should ever be considered a hostile experience (for either party) and you should never threaten your employer with quitting if they don’t honor your request. Take time before meeting with your employer to documented your specific achievements and examples of your ability to go above and beyond the expectations of the position. Setup a formal time with your boss and provided adequate notice regarding the meeting subject, so that they are not blind-sided with your request. Lastly, be prepared to offer concessions if necessary, such as extra hours worked or further roles and responsibilities.
3 – Rent out a spare room
If you are like most Americans, your single largest expense is housing. Whether you own your own home or rent an apartment, leasing out spare bedrooms can bring in substantial income, especially if located in an urban environment. If a long term tenant isn’t in the cards for your situation, consider a night-to-night arrangement through either Airbnb or Roomorama, which allow single night rentals that can earn over $100/night! These services will take a portion of the booking fee paid by the guest, but in exchange offer background information on your guests, which tends to attract a higher quality tenant.
Before you run off to list your available space, you’ll need to ensure your local laws and ordinances accommodate this type of arrangement, and you’ll have to pay taxes on the rental income, but making an extra $10,000-$20,000/year is certainly within the realm of possibility. Even if you don’t have outstanding debt to pay off, think of all the free equity you could build in a single year if you on your own home!
4 – Peer-to-peer lending
A wonderful form of passive income for the internet age, peer to peer lending allows investors to take on the role of a private bank for online lenders who need personal loans. These types of loans typically offer high % rates, but beware that the high rate of return is often due to the risky nature of the loans. Most lenders looking outside of conventional brick & mortar banks typically have bad credit, but blending your available funds across a variety of investment options and minimizing the capital associate to each loan can offer a low risk investment with substantial yield potential.
Buyer beware! One of the newest and fastest growing forms of peer to peer lending online involves leveraging Bitcoin payments. Offering incredibly high rates of return is standard practice, but the unregulated nature of the Bitcoin ecosystem and the highly fluctuating price typically do not justify the associated risk. As all transactions are anonymous, there is also little to no hope for recovering funds in the event of fraud. I highly recommend avoiding this type of loan until further legislation is made to govern Bitcoin transactions and prevent malpractice.
5 – Cash in on your hobby
If your passion involves crafting handmade products or artwork, sites like ArtFire or the ever popular Etsy offer a huge audience to sell your homemade products. Avoiding the large listing fees from eBay or other bidding sites, you’ll find that you can make money selling just about anything, at a fraction of the cost (Etsy charges 3.5% on each item). For product ideas for the less crafty among us, you can browse the current listings to track the hottest selling items within your range of expertise and calculate the expected cost to produce each item. After you calculate the estimated net profit (profit – cost), head on down to your local craft store and create a test product! As you net a profit on your first sale, the extra money can either be reinvested in your growing online craft business, or applied to help pay down your debt or other expenses! The key to success in the online hobby business is keeping your expenses as low as possible, so may sure you check out the local paper for coupons and don’t forget to check the clearance bin!
There are numerous other opportunities to earn income online, but I’ve only highlighted the most tried and true approaches in this article. In the future, I’ll discuss some of the more “unconventional” ways to make passive income online, but I’d love to hear your thoughts on other opportunities I may have missed. Share your ideas below and let’s discuss some guest blog posts!