It is easy to think that a higher income will always lead to better finances but that is not always the case. This belief comes from the struggle of trying to make debt payments every month. The challenge of meeting these payments is a point of struggle for a lot of consumers. This is why a bigger income is seen as a big help in lowering down their monthly payments.
Once their monthly payments go down, they now have more disposable income to help them manage their budget. One thing you need to remember is that you do not need to have a high income to start budgeting your money You need to have a budget regardless of how much you make in a month. This is a tool you need to manage your money well.
A higher income is a welcome development but that alone will not dictate if your finances will turn out for the better. It can be a big help but it is not the only thing you need to consider. You still have to look at your expenses, your long-term goals, and even the way you manage your money. Your household budget will also be a big factor if you want to improve your finances.
How to get a higher income?
While on the topic o66f getting a bigger income, it pays to know how and why you would take home a bigger pay. Here are some of the most common reasons why you are able to increase your income every month.
Promotion at work
One of the most common reasons why your income could go up is getting an increase in your pay at work. This usually comes after getting a promotion where a pay increase follows. Your performance at work or tenure could be some of the reasons why you are getting that promotion. You do need to remember that it also means you will now have more responsibility at work.
Higher income means more money is coming into your budget every month and they can come from side hustles. CNBC even shares that millennials engaged in a side hustle rake in about $580 a month on average. You do not have to overexert yourself when engaging in a side hustle. There are even things you can do which revolves around your hobbies.
Identify opportunities where you can use your hobbies to earn some extra money. If you love to bake, you can sell them online or even start with family and friends. You might have a talent in creating digital designs then offer your services to businesses near your place. You can also identify friends with businesses who might need your services.
The good thing about this is that you get to earn extra money while doing something you already love to do. As such, it will not feel like you are working at all. The more you do it, the more you learn and improve on your craft as well. It may even be a good side gig when the time comes that you have to retire.
Putting up your own business
Putting up your own business could actually start from a side hustle. Once you “test the waters” and find out that it can actually be a great business idea, you can start to put up your own business. You have the option of still managing it outside your day job which should lead to a higher income since you will now have two income sources.
However, you need to make sure that you have a handle on your time management skills since these two will eat up a lot of your time. You need to make sure that one does not interfere with the other.
Otherwise, you could end up losing one of them. Do not stretch yourself out too thin as well because you could end up getting sick and have to use up whatever you saved up just to get better.
Why it does not always help you financially?
It might come as a surprise but a higher income does not always lead to better finances. Here are some of the reasons why that happens.
You increase your lifestyle as well
As your income increases, there is a chance that your lifestyle goes up as well. You see that your income starts to go up, you start spending more. You might be tempted to upgrade your car even if the one you have is still driveable. Another lifestyle upgrade could be buying a bigger and more expensive house when the one you have is just perfect for your needs.
You need to guard against such lifestyle upgrades when you do not need it because it will negate any increase in your income. It does not mean that you cannot buy a new car or a new home but only if you need it. If your car is already breaking down or your house is already too small, then investing in new ones make sense. But if you are only upgrading because you can, it might not be necessary.
You start pursuing your wants in life
A higher income can tempt you in giving in to your wants. When you decide between needs and wants, your needs would always come first. This can give you feelings of being deprived and once you find the opportunity to buy the things you want, you might go ahead and make that purchase. You then feel the regret once you have already spent the money. You need to get a handle on your impulsive behavior where you immediately give in to your wants when you get some extra money in your budget.
How to use that higher income to your advantage?
How can you make the most of your extra money? Is it possible to use it to strengthen your finances? Here are a few ways you can do exactly just that.
Increase your savings
A higher income gives you the ability to increase the amount you can save every month. This is one of the things you need to do when you have a bigger income. Having this mentality will help you plan for your future better. You can increase your emergency fund or even your retirement fund. This way, you do not spend your extra funds for unnecessary purchases.
Work towards your long-term goals
By now, you need to have long-term goals you are working to reach. It can be paying down the house and retiring, putting together a solid plan to retire in a different country, or even set-up a business of your own. Whatever your goal is, use the extra money in your budget to help you move forward and closer to your target.
Aggressively pay down your debts
One of the best things you can do with a higher take-home pay is to pay down your debt more aggressively. In doing this, you get to save on interest payment. Also, once you free up your debt payments, you can use that amount to strengthen other areas of your finances. It can be used to grow your investments, help you retire early, or even give back to a charity of your choice.
A higher income is always a welcome development in your life but it is not the only factor to consider when you are looking to improve your finances. You need to make sure that you take a holistic approach in improving your finances because focusing on one area alone will not be enough.