Want to Increase Income? Focusing on 5 Elements Can Help

1. Making Your Money Sustainable

Sustainable income is simply income that’s predictable and reliable. For example, a teacher would have a more sustainable income than a sales professional working on commission. While a sales professional might have the capacity to earn a higher income, it is likely more volatile and perhaps not as reliable.

But having sustainable income is more than just having a steady paycheck – it’s also about having a steady income stream, which can come from several places, including:

Investible products. You could put money into dividend-paying stocks to generate sustainable income. Other products in this category that might be more secure include CDs, bonds, I bonds and Treasury inflation-protected securities (TIPS).

Insurance products. Cash value life insurance and annuities can provide income and cash flow during different periods. Even better, if you use your life insurance and annuities the right way, there can be tax advantages to these income sources. Work with your financial professional to help you pick the optimal products for you.

Investing in businesses. Sustainable income could mean you’re bringing in consistent income from your investments in different businesses. For example, you could buy into a car wash or other type of business, and over time, these investments might generate sustainable income for you.

Real estate. If you are able to invest in real estate, this has been a valuable source of sustainable income for many people over the years due to its high growth potential and the ability to earn income by renting it out.

But keep in mind you must have the capacity and funding to invest in and manage the properties to make this a good investment.

2. Maximizing Income

As you set your goals for your career this year, one of them might be to maximize your income. Maybe you’ve taken the time to invest in yourself by getting a new degree or certification. Perhaps you’ve taken on more responsibility at work. Considering all these things, you might be able to increase your salary. We’ll dive a little deeper into salary negotiation in the next section.

But maximizing your salary isn’t the only thing that goes into maximizing your income – it's also about when and how you get paid. There are several components to maximizing income:

Deferring income. It might sound counterintuitive, but one way to maximize your income is to defer some of it into the future, which is also called a non-qualified deferred compensation plan. This is a good option for you if you have a high salary and you are in a higher tax bracket. If this is an option for you, weigh the risks and the benefits.

One risk is that if your company goes out of business, you won’t get your deferred income. But if your company is well-established, a benefit is that you don’t have to pay taxes on the total of your salary, just the portion that you are paid that year.

Benefits. Exploring what company benefits you can utilize to maximize your income and earning potential is critical. As this year kicks off, check in with your human resources department to see what your company offers that you might not be taking advantage of.

For example, my company offers our stakeholders a wellness benefit where we are reimbursed up to $300 of gym membership fees. We offer tuition reimbursement, professional development stipends as well as a matching gift program of up to $500 for donations to a favorite nonprofit organization. We also provide an additional $400 deposit into stakeholders’ health savings accounts (HSAs) if they get their annual check-up.

Ensure that if you have benefits like this, you’re taking advantage of them. Also, maximize your 401(k) contributions to receive your employer’s full match. Ask your HR department whether your company offers other benefits like legal services, child-care benefits or other types of benefits that you can utilize.

Equity. In some organizations, once an employee reaches a certain level, equity compensation is a possibility. It makes sense that as you progress in your career and climb the ranks, you ask if equity compensation is an option for you. Your equity-based compensation is likely to cost you less in taxes than ordinary income.

Work with your financial professional to ensure you are maximizing your income. They can provide guidance based on your specific situation.

3. Automating Processes

Automating processes helps make it easier for you to make your income work for you. Doing so helps you take the thought out of it – it's just something that happens because you’ve taken the time to set it up.

Negotiate your salary early and often. While wage negotiation might not be an explicit expectation during your annual performance review or when you are taking on a new job, you should do it anyway. Part of automating your income is to ensure you prepare to renegotiate the highest rates of pay for you and your experience – whether it’s at your annual review or when you are taking a new job.

This is especially important for women. A study from Harvard University's Kennedy School found that men are more likely to engage in salary negotiations than women, although the Society for Human Resource Management found that women are starting to negotiate more – especially among the 18- to 34-year-old age range. SHRM also noted that most employers aren’t going to invite you to negotiate your salary, you have to be the proactive party. Build renegotiating your salary into your own systems and ensure you bring it up annually.

Automate savings. Your savings is probably the most important thing to automate. Make sure you opt in to have automatic savings into your 401(k) at work. If you don’t have access to a qualified plan at work, open an IRA and automate deposits into that.

It’s also important to put a portion of every paycheck into other investment accounts or a basic savings account for your emergency fund. If you don’t have an emergency fund yet, aim for funding just one month of living expenses with the ultimate goal of having three to six months of living expenses stocked away.

Automate your sustainable income. If you have income-producing rental property, be sure to hire a good property manager so you aren’t spending all your time managing the properties yourself – i.e., chasing down the rent and handling upkeep on the property. These are a drain on your time, and investing in somebody else to help you frees up your time for other things.

Automate distributions. If you’re already retired, make sure you automate your distributions from your retirement accounts so you can spend your time enjoying the benefit of the income vs. being frustrated by managing your distributions yourself. This can also make it feel like you are still receiving a paycheck, which may help you to align your spending with your income.

4. Reinvesting Income

I love the saying “Put your money to work for you.” While that is the general message of this whole article, this section in particular is for just that.

When you earn money, you can put it back to work for you by reinvesting those earnings. Let’s take rental properties for an example. Once they start generating income, you can use that income to pay off some of your debts and reinvest the rest back into the property for improvements or maybe even to buy a new property.

Outside of rental properties, if you’re a business owner, you can reinvest income from the business back into a business so you can scale and grow. Author and artist William S. Burroughs famously said, “When you stop growing, you start dying.” This is an important thing to keep in mind when reinvesting in your businesses and other income-producing ventures.

5. Making Income Tax Efficient

There are multiple options to make your income tax efficient, but the optimal strategies depend on you. Your trusted financial professional can help you navigate all these situations in a way that is most beneficial for your circumstances.

One of the most important things in making sure your investment income is tax efficient is working with your investment adviser. This trusted professional can help you find and employ tax-efficient investment strategies.

If you are retired, these strategies can include helping you manage your other income to prevent your Social Security benefits from being taxed at the highest levels. If you’re not yet retired, another strategy could include blending your retirement savings in pre-tax savings like a traditional 401(k) and a Roth 401(k) so that in retirement you have a mix of taxable and tax-free income, or including municipal bonds for tax-free income.

Above, we explored looking into your benefits at work to maximize your income, and that also applies here. Ensure you are negotiating and asking for some of these tax-efficient benefits when you’re taking on a new job or even during your annual review – especially if your employer is not willing or able to increase your current salary.

To dive deeper into getting smart about your income, you can read Find Your Freedom: Financial Planning for a Life on Purpose by Jamie Hopkins and Ron Carson.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.