“A large income is the best recipe for happiness I ever heard of.” – Jane Austen
For several years, I had the privilege of teaching Dave Ramsey’s Financial Peace University (FPU) course at my local church. FPU teaches the fundamentals on a wide variety of financial subjects, including budgeting, debt reduction, retirement planning, saving for college, insurance and real estate. Over the years, we saw dozens of participants successfully get out of debt and put their finances in a much more sustainable position. FPU does a great job of teaching participants to manage and allocate the money they already have, but the class has very little to say about how to increase your income so that you can achieve your long-term financial goals more quickly. Classes like Financial Peace University only focus on half of the wealth building equation. Whatever you make minus whatever you spend is the money that you have left over to build wealth. You can increase the amount of money that you have to save and invest by reducing your expenses, but you probably won’t ever have enough money to invest to achieve true financial freedom unless you significantly increase your income throughout the course of your life.
Traditional Retirement Savings Isn’t Enough
Let’s imagine that you make what the typical American family makes and save 15% of your income throughout your working life. In 2014, the average American family earned $51,939. If you were to save 15% of that income between age 25 and age 65 and received a 9% rate of return on your money, you would have about $3.038 million in your retirement account. That might sound like a big number, but remember that inflation will dramatically reduce your spending power in retirement. If inflation averages 3% over your working life, your $3.038 million will only be worth $839,285 in today’s dollars. Most financial planners recommend that you try to live on 4% of your nest egg each year. If you were to follow this guideline, you would have created an annual income of just $33,571 in today’s dollars for your retirement years. That’s hardly enough for anyone to get excited about.
If you want to become truly wealthy over the course of your working life time, you are going to have to earn more than the typical American family income. If you wanted to become a millionaire in ten years, you would have to save approximately $5,100 per month assuming a 9% rate of return. To save that much money each month, you would have to make $140,000 per year and live on half of your after-tax income for the entire decade. You are going to have to regularly find ways to increase your annual income so that you have the capability of funding your dream spending plan. While suggesting that someone should make more money is much easier said than done, there are several different action steps that you can take to significantly increase your income in the next year or two.
Income Growth Strategy 1: Become an Expert Salary Negotiator
If you are an employee at a business or a non-profit, your salary will depend on a variety of factors. The manager that determines your salary will pick a payroll number based on the job that you are doing, how well you are doing it, how much experience you have, what industry averages are for that position in your area. Many of the factors that determine your salary are arbitrary, which could mean that there are many other people at other companies doing very similar work to what you do, but are getting paid a whole lot more. There is probably someone, somewhere that is making significantly more money than you are doing a nearly identical job. It’s not that they’re any better than you are, they just had better information or better negotiating skills than you did.
When asking for a raise or discussing your salary at a new job, you have to remember that you are entering a full-fledged negotiation. Your employer is incentivized to hire you for the lowest amount you are willing to work for in order to maximize their profit margins or free up room in their budget for other expenses. They will come to any salary negotiation with arguments and data to support that they should pay you less than you might be worth elsewhere. Come to the negotiation with just as much information to support the salary that you want to receive.
Before negotiating a salary, spend five to ten hours researching what other people in similar roles are making at other companies using tools like Glassdoor.com and Salary.com. Come up with well-reasoned arguments why you are the best person for the job and why they should be willing to pay a premium to hire you over someone else. Be prepared to highlight your skillset and accomplishments during the negotiation. Determine in advance what salary level you are willing to accept and be prepared to negotiate benefits like additional vacation, relocation fees, the ability to attend conferences or getting a better than usual bonus structure. You should also read up on the topic of salary negotiation by reading at least two books on the subject and by reading dozens of articles on the subject. I recommend the book Salary Tutor: Learn the Salary Negotiation Secrets No One Ever Taught You by Jim Hopkinson as a good starting place for your research on salary negotiating.
While these recommendations may sound intense, effectively negotiating your salary at the beginning of your career can have an outsized impact on your lifetime earnings. According to a study that was published in the Journal of Organizational Behavior, an employee whose beginning annual salary is $55,000 rather than $50,000 will earn more than $600,000 in additional salary over the course of a 40-year career (http://eagle.gmu.edu/newsroom/843/). Having a higher starting salary will dramatically improve your life-time earnings because any future raises will reflect your higher starting salary. There will only be a handful of times in your life when coming well prepared to a negotiation can result in you earning hundreds of thousands of dollars over the course of your lifetime. As a future millionaire that’s willing to do what it takes to reach their financial goals, you can’t underprepare for a salary negotiation.
A while back, I served on a hiring committee to help a non-profit select a new executive director. The candidate we hired came to the salary negotiation armed with the salary range for executive directors at very similar organizations across the country. He knew what kind of benefits were common for a position like his and made well-reasoned arguments why he was worth what he was asking for. He came to the negotiation much better prepared than the board members that were tasked with negotiating his salary and got exactly what he wanted as a result. The non-profit ended up paying him a higher salary and giving him more benefits than the job description had originally suggested was possible because he came prepared.
Income Growth Strategy 2: Ask for a Raise
Many employers won’t automatically give out cost of living raises or a raise because you’ve worked for them for a long time. If you never ask for a higher salary, your employer may assume that you are perfectly happy with your compensation package. Remember that your employer is economically incentivized to pay you just enough to keep you from looking for a better job opportunity somewhere else. Unless you work for a larger company that has periodic performance and salary reviews, don’t expect your employer will ever start a conversation about raising your salary. If you work hard for your employer, have become more valuable to them over time and genuinely deserve a raise, you are going to have to be the person that initiates a conversation about your salary.
The Best Time to Ask for a Raise
If you plan on asking for a raise, the timing of your request is critically important. Ask for a raise after you or the department you work for has had a big win. Maybe you went above and beyond for a customer, you made a big sale or your department completed a project on-time or under budget. You are much more likely to get a “yes” answer when your success is recently on your employer’s mind. Conversely, you probably don’t want to ask for a raise if you’ve recently been reprimanded or if your company’s financials are in the tank.
How I Negotiated a $10,000 Raise
When I had started working for a website design agency fresh out of college, I was paid around $45,000 per year for my work. I knew I could be making more than this based on the value that I create and asked for a raise after I had recently completed a large development project that everyone considered a big win for the company. I received a 5% raise which was certainly welcomed but not competitive with what I could have been making in the corporate world. I was a remote employee and my employer didn’t have the best understanding of what someone like me should be earning in the city that I live in. I really enjoyed my job because of its flexible nature, but probably wasn’t going to get a competitive salary unless I something concrete to show that other companies would be willing to pay me much more for the same work.
I interviewed a couple of other agencies and received a salary offer of $62,500 for the title of senior web developer. The offer was from an agency I wasn’t all that excited about working at, but I knew I could use that offer as the basis for getting a significant bump in salary. I called up my employer and told him about the offer I received and told him that I really wanted to keep working for him, but the money was too good to pass up. I asked him how close he could get me to that number in order keep me around and told him to get back to me. A couple of days later, he said he could probably afford to pay me $58,000 per year. I accepted the offer and received $10,000 raise overnight.
How to Ask for a Raise
If you have determined that it’s the right time to ask for a raise, first determine how much you would like to ask for. Choose a number based on what you believe you are worth and what you think your employer will say yes to. Develop a list of arguments that show the value you create for a company and how you are becoming more valuable for your employer over time. Put your request in writing and schedule a meeting with your manager. During the meeting, tell them that you are looking to get a raise and provide them a summary of your reasoning. Tell them that you don’t want an answer right away, but to take your written request and consider it for a few days. Follow-up with your request a few days later.
Here are some tips that will improve your chances of getting a raise:
- Don’t ask your employer for a cost of living adjustmen Your employer will probably only give you a 2% or 3% raise as a cost of living adjustment raise. It would also be very easy for your manager to say, “Well, no one has given me a cost of living adjustment this year” and deny your raise.
- Ask for your raise in writing. This will provide a clear record of your request and give something for your manager to refer back to when they are reviewing the matter.
- Use data to justify your raise. Every company in the world wants to create profit for its shareholder(s). If you can show how your work adds to the bottom line with tangible data, your employer will have to consider they might lose the value you create if they say “no” to your request and you leave your job.
- Don’t Threaten to Quit. Be as polite and kind as possible with your request. Never suggest that you’re going to quit or stop working hard if you don’t receive a raise. Managers would much rather reward someone they like for their hard work than to bribe someone they don’t like ot stick around.
- Demonstrate Increasing Value over Time. Show your employer how you have taken on more responsibilities or have otherwise provided more value to your company since the last time you received a raise. At least theoretically, employees are paid based on the value that they create. If you create more value for your company, you have a strong argument to suggest you should be able to take home some of that additional value you are creating.
- Stay Grounded in Reality. Your employer can realistically only pay a certain dollar amount for your job without losing money. If you’re asking for salary that’s higher than they can afford to pay you to do the job, your employer may decide that they don’t need you anymore.
- Don’t Be Entitled. Never ask for a raise because you’ve recently had a work anniversary or simply because you feel like you deserve one without anything to back that up. When you ask for a raise, it should be entirely based on data and the increasing value you bring to your company over time.
Regardless of what job have, there is almost certainly someone somewhere in the world that is doing the exact same job that you are and are getting paid much more than you are. There’s no reason that you can’t make the highest salary available for the type of position that you do, you just need to work hard and negotiate for the best salary possible. If you continually add more value to the company you work for and professionally present your request for a raise, there’s a good chance you could add several thousand dollars per year to your salary for just a few hours of work.
While getting a 5% or 10% raise won’t create the massive income that you’re looking to create as part of your ten-year turnaround, it’s a good first step to increasing your income. Remember that your ten-year turnaround is a marathon that could consist of multiple raises, job changes or new businesses. Asking for a good early win on the path of your ten-year turnaround.
When Your Employer Can’t or Won’t Give You a Raise
Not every employer is in a position to hand out a raise just because you asked for one. Sometimes your employer legitimately can’t afford to give you a raise and sometimes they might just think that you haven’t earned a raise. If your employer declines your raise request, ask them why they are unable or unwilling to increase your salary. If they aren’t able to increase your salary because they can’t afford it, ask them if you could have a raise if you found a way to bring in more money for the company. If they aren’t willing to give you a raise because they think you don’t deserve a raise, ask them under what circumstances they would be willing to give you a raise. If you legitimately believe you deserve to be paid more and your employer is unwilling to give you a raise, it might be time to start looking for a job at another company.
When You Can’t Make More Money Locally
If you live in an economically depressed part of the country where there are simply no decent jobs to be found in your field to be found, consider moving to another part of the country where jobs are plentiful and easy to come by. While moving to another part of the country might seem like a dramatic move, it could be a great way for you to have a fresh start personally and professionally. I’m not saying this is the right move for everybody, but if you have nothing tying you down, aren’t thrilled about where you live and are looking for new opportunities, consider moving to a more economically vibrant part of the United States.
As I write this, the unemployment rate in Sioux Falls, South Dakota, where I live, is hovering at 3.3% and new employers are moving to the town regularly. Anyone half-decent worker looking for a job, especially in the medical, education, banking and technology fields, could move to Sioux Falls and find a job within a few weeks. While the salaries for professional fields aren’t as high in Sioux Falls as they would be in some other parts of the country, the cost of living is substantially lower than many urban centers. Look for a community that has low employment, strong economic growth and has employers in the industries you want to work in when looking for a new place to live.
Income Growth Strategy #4: Start Your Own Business
The best way to creative a massive amount of wealth throughout the course of your life is to start and grow your own business. If you were to look at the Forbes 400, a list of the wealthiest individuals in America, you would find that almost the entire list is made up of individuals that started their own business or were the heirs of fortunes that were created by entrepreneurship. The top ten list currently consists of Bill Gates (Microsoft), Warren Buffet (Berkshire Hathaway), Larry Ellison (Oracle), Jeff Bezos (Amazon), Charles and David Koch (Koch Industries), Mark Zuckerberg (Facebook), Michael Bloomberg (Bloomberg News), Jim Walton (Wal-Mart), and Larry Page (Google). Each one of those individuals built a wildly profitable and scalable business over the course of multiple decades.
Entrepreneurship is The Best Path to Becoming a Multi-Millionaire
If you want to become a multimillionaire as part of your ten-year financial turnaround, you are going to have to either start a business or buy a winning lottery ticket. With a few rare exceptions, there just aren’t any jobs that are going to pay you the $250,000-$750,000 income that you would need to put a few million dollars in the bank by the end of your ten-year turnaround. If you wanted to have $5 million in the bank by the end of your ten-year turnaround, you would have to invest $350,000-$400,000 per year and earn good returns on your investment. The only way that you are going to be able to save that much money is to start and grow a successful business. Building a business isn’t the only way to become wealthy throughout the course of your life, but it is the fastest way to build wealth.
When I incorporated American Consumer News, LLC (MarketBeat) eight years ago, the business made less than $50,000 per year and wasn’t worth anything to a potential acquirer. In 2016, the company is on-track to do more than $3 million in total revenue and could probably be sold to a buyer for $8-$10 million according to a few business brokers that I have spoken to. It’s taken a ton of hard work, education and perseverance to grow MarketBeat as quickly as it has, but how amazing is it that a business that’s worth nothing can be worth nearly $10 million over the course of eight years? I’m not suggesting that everyone that starts a business will have the same level of success that MarketBeat has had, but if you want create a significant amount of wealth over a period of five to fifteen years, the single best way to do that is to start and grow a scalable a business.
Some People Should Start Businesses, Others Shouldn’t.
Entrepreneurship isn’t for everyone. Some people are more naturally wired to thrive in an entrepreneurial environment than others. If you are self-motivated, ambitious, willing to hustle and are a bit-free spirited, you are more wired to succeed in creating your own business than someone that needs to be managed or have their hand held. Starting your own business requires a substantial amount of self-motivation and personal ambition. If you’re going to succeed in business, you are going to have to turn off the television at night, say no to social engagements and work incredibly hard for years on end. If you would rather cross off items on your business to-do list than catch up on the latest episode of The Bachelor or The Walking Dead, you are probably a good candidate to start a business.
Conversely, if you don’t have the personal drive and ambition to make yourself work on nights and weekends, even when the chips are down, starting a business might not be the best choice for you. Starting a business requires an incredible amount of work and you will probably be disappointed in the results that you receive if you only work on a business a few hours each week. If growing a business isn’t one of your top two or three priorities in life, you probably shouldn’t start a business. If you’re not naturally wired to start a business, don’t start one. Just be the best employee that you can be for another company and try to maximize your salary through the value you create for your company.
What Kind of Business Should I Start?
The type of business that you should start depends on a variety of factors, including your personality, strengths, interests and goals. Here are some considerations to be mindful of while identifying what kind of business that you want to start:
- Don’t Play David and Goliath – Don’t pick a business where you would have to upend an entire industry to be successful. Unless you have a large amount of venture capital and significant industry knowledge, it’s hard to topple a well-established and profitable industry leader. We are not trying to take over the world, we are simply trying to create a healthy income stream to provide for ourselves and our families.
- Choose a Scalable Business – If you want to build a business that generates 7 figures in revenue (or more), select a business that is not limited by the amount of time you have available or by the geographic location of your business. Don’t build a local business that can only sell to a certain area unless you plan on opening multiple locations or franchising your idea.
- Service Businesses Beat Product Businesses – I am personally biased toward selecting a service business over a product business because the profit margins are much better and they are generally a lot easier to start and get going than a product business. When you start a service business, you don’t have to worry about manufacturing, distribution or supply chain issues. Instead, you simply develop a service, offer it to the market and start making money.
- Innovate an Existing Business Model – Be weary of choosing a business model that doesn’t exist anywhere in the world already. If an entirely new business model truly was a good idea, somebody would probably already be doing it. Instead, find an existing business model that’s already working somewhere else and find a few ways to improve upon it. While tech start-ups that promise to disrupt an industry might get a lot of buzz, most profitable companies are pretty boring-sounding businesses that simply offer a good product or service at a reasonable price. For every one start-up like Uber that takes off, there are 1,000 failed start-ups that never made it off the ground.
- Choose a Business that Matches Your Interests – When you start a company, you should plan that it’s going to take at least five years to build out a profitable business. Because you’re going to be working on your business for so long, you really have to choose something that you can wake up excited about every day. It doesn’t have to be your personal passion, but it does have to be something you are going to have fun doing and will have the energy to keep doing when you’re down and out.
- Avoid Multi-Level Marketing Programs – Most people are now smart enough to run the other way when they hear words like “Amway” and “Herbalife” these days, but I’m continually surprised to see how many people are still falling for the hype of multi-level marketing (MLM) programs. The reality is that most people that sign-up for MLM end up making very little or no money. I’ve written about this topic extensively on my blog at http://www.mattpaulson.com/2014/06/please-dont-pitch-me-on-your-mlm/.
- Use Your Unfair Advantages – Everyone is better at something than everyone else. If you have unique skills, abilities or resources that no one else in your industry has, you can insulate yourself from competition and grow much faster than you would otherwise. In my case, I’m better at marketing financial content and automating tedious business tasks using software than just about anyone else. Many have tried to copy what I’ve done in my business, but they just can’t compete because they don’t have the unique skillset that I do. Identify what unique skills or other unfair advantages that you have and make them the core of your business.
- Be Mindful of Start-Up Costs – One of the most common reasons that start-up businesses never get off the ground is because they don’t have the investment capital necessary to really get their business going. For this reason, I strongly recommend that you choose a business model that requires a lot of hustle and hard work, but doesn’t require a significant amount of money to get started, at least for your first business.
It would be much easier if I could just tell you what kind of business that you should start, but the reality is that not every business model is right for every entrepreneur. It would be much easier if I could just tell you to go out and start a car-wash or a web-design business, but it just doesn’t work that way. Do your own research and find the business model that’s right for you. Take an inventory of your resources, your skills and your interest and then choose a business based upon your personality, your business and its likelihood of success.
While the completing process of taking a business from idea to launch is beyond the scope of The Ten-Year Turn Around, I’ve written extensively about how to launch a business in my first book, 40 Rules for Internet Business Success. You can get a copy of that book on Amazon at www.myemailmarketingbook.com in paperback, Kindle or audiobook formats. You can also learn about my favorite customer acquisition strategy, email marketing, in my second book, Email Marketing Demystified. You can get your copy of Email Marketing Demystified at www.myemailmarketingbook.com. Finally, there are a number of other books that I recommend to anyone that wants to start their own business. These are listed in the appendix of this book.
Income Growth Strategy #3: Start a “Side Hustle” Business
Going all-in on a full-time business isn’t right for everyone, but that doesn’t mean entrepreneurship is totally off the table. You might have a high-paying or cushy full-time job that you don’t want to give up, or you might have family members that depend upon the salary from your day job to keep food on the table and keep the lights on. Not everyone is in the position to dive head first into a business, and that’s okay. There are still some ways that you can leverage the benefits of entrepreneurship without losing the security of your day job or putting your family at risk.
Introducing The “Side Hustle”
A side hustle is a part-time business that allows you to leverage a unique skill or ability that you might have during your off-hours to make extra money. A side hustle usually involves you selling product or service to other individuals, such as professional photography, website design, selling art on Etsy, driving an Uber or selling an online course. Side hustles usually have incredibly flexible hours because they can’t interfere with your day job by definition. While you won’t make the type of money you might make launching a full-fledge business with a side hustle, you can still make an extra $500-$1,000 per month with the right side hustle.
I believe that anyone that isn’t running a full-time business should have a side hustle of some kind or another. Side Hustles are a great way to add another $10,000-$15,000 to your annual income each year. With that extra money, you can pay off debt, max out your retirement and reach your long term financial goals much faster. Starting a side hustle will also create diversity in your income. If you ever lose your job, you still have some money coming in from your side hustle to get by while you look for another job. The only people that probably shouldn’t start a side hustle is someone that is already a full-time entrepreneur. In that situation, a side hustle can become too much of a distraction from your main business and cause you to lose focus.
Types of Side Hustles
There are an untold number of ways to make money on nights and weekends. I have put together a list of some potential ideas for you to consider below:
- Drive for Uber or Lyft
- Work as a freelance bartender on nights and weekends
- Serve as someone’s virtual assistance
- Raise chickens in your back-yard
- Remove pet waste from other people’s back yards
- Do voice over acting work as a freelancer
- Play Santa Claus during the holidays
- Bake cakes for weddings and other special occasions
- Purchase a photo booth and rent it out to events
- Sell your arts and crafts on Etsy
- Referee middle-school and high-school sports games
- Serve as a substitute teacher for your local school district
- Offer a mobile car detailing service
- Scour garage sales for good finds and flip the merchandise on eBay
- Write on a freelance basis for an online publication
- Build websites for people and local businesses
- Clean other people’s houses
- Rent out your apartment on AirBNB
- Blog about a topic that interests you and make money with ad revenue
- Create and sell an online course
- Find a service that you can offer on Fiverr.com
- Babysit other people’s children
- Clean other people’s pools
- Fix other people’s computers
- Deliver pizza’s
- Do handy many work
- Paint other people’s homes
- Work for RedBox and get paid to stock DVDs at their kiosks
- Complete jobs listed on TaskRabbit.com
- Wash exterior windows on people’s homes and businesses
Use this list as a starting point to start thinking about what kind of side hustle you might want to start. Don’t think that you have to do any one of the thirty items listed above. Your side hustle can literally be anything that’s legal, moral and ethical to earn money on nights and weekends.
While researching for this chapter, I came across a resource that was simply too good not to share. Budgets are Sexy has put together a list of more than 60 different side hustles and has had people who did each of those side hustles share their experiences. The resource, title “60+ Side Hustles and Counting…” can be accessed at http://www.budgetsaresexy.com/ways-to-make-money/. If you want even more ideas for side hustles, there are dozens of lists of different side hustles online. Just search for “types of side hustles” in Google and numerous lists of side hustles will come up.
A Note About Passive Income
If you have spent more than a few minutes reading about Internet marketing, you have probably been pitched on the idea of generating a passive income stream. In order to get you to sign-up for a service or buy some sort of product, some marketer will sell you on the dream that you can build an easy-to-setup business will generate income for you while you’re doing just about everything but working. They will promise to teach you how to setup passive income generating businesses for just $39.97.
The dream is that you have some sort of business that runs around the clock without your intervention. Hanging out on the beach? You’re making money. Taking a nap? You’re making money. Having dinner? You’re making money. In the shower? You’re making money. Your passive income business may be a website that generates ad revenue from Google AdSense. It might be an e-commerce store with outsourced fulfillment. It could be a collection of e-books that you sell through your website. Anything that doesn’t require you to be at your computer while you’re making money could be considered a passive income business.
There’s only one problem with passive income businesses. They don’t actually exist. There are many entrepreneurs that have businesses that generate income while they sleep, but there’s nothing passive about them. The idea that you can create a business that you only work on a few hours per week that generates significant amounts of income for you is a fairy tale. The mythical 4-Hour Work Week does not exist. There’s nothing passive about building businesses that generate passive income streams.
The reality is that successful business owners with “passive income” businesses work really, really hard on their business to generate income when they’re not working. They are compulsive about finding ways to improve and grow their business. Chances are, they are working harder than you do. How do you think they got where they are? Do you think Pat Flynn (www.smartpassiveincome.com) built a business that generates $100,000 per month in affiliate commissions by working four hours per week? Do you think that Tim Ferris built the “four-hour” brand by working four hours per week? Not a chance.
Yes, you can build your business in such a way that you get paid when you’re not working. I’m living proof. Ten years into building my online business, I can take a day off just about whenever I want and not skip a beat. The problem is that it will never happen if you start off only working a handful of hours per week. You’ll never get anywhere because you didn’t do any work up-front. The occasional four-hour work-week is a luxury for people that have already put thousands of hours of work into building their businesses. If you’re just starting your business, put as much ambition and effort into building and growing your business as possible. If you truly want to have a business that generates passive income, be prepared to put in thousands of hours of work to make that happen.
My Income Maximization Plan
I am going to take the following steps over the next twelve months to increase my income:
In order to attain complete financial freedom over the next ten years, you are going to have to increase your income so that you have the ability to save dramatically more than a typical American family. You can do this by becoming a better salary negotiator, working toward a raise, starting your own full-time business or earning extra money by doing a side-hustle. The biggest thing that you should take away from this chapter is that your income and your career path is not static. You can earn dramatically more money over time if you start moving toward a higher income today. It is entirely possible to double, triple or even 10x your income throughout your ten-year turnaround, but remember that this is a ten year process. Don’t expect that you will double your income during the first year without dramatically increasing the economic value you create for your employer or your customers if you run a business. It will take a few years to learn new skills, create more economic value and find the right opportunity that will allow you to maximize your income.
- Learn about salary negotiation to be well-prepared for your next salary discussion.
- Ask for a raise or start looking for a higher-paying job every 12-24 months.
- Consider what kind of full-time business that you can start in the next 1-3 years.
- If full-time entrepreneurship isn’t for you, consider starting a side-hustle to create extra income