#RealMoneyTalk: Do We Need Additional Income?

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A recent viral video shows comedian Hasan Minhaj testifying before a committee of the United States House of Representatives about student loan debt. It may sound like I’m describing the most boring video you could ever see, but it’s actually really impactful and if you haven’t seen it then watch it immediately after reading this post! Hasan and his team researched when each of the committee members attended college and how much they paid in tuition each year while they were there. 

The results showed that on average the committee members attended college 33 years ago and paid an average annual amount of $11,690 in tuition after adjusting for inflation in 2019. He compared that to the average of the tuition costs at each of those same colleges today and the results showed that the average tuition at those schools is almost $25,000, representing a 110% inflation rate! According to the U.S. Bureau of Labor Statistics, $11,690 in 1989 has the same “purchasing power” as $62,134.84 in 2019 in the category of college tuition and fees. This is the same exact 30 year period of time during which wages only increased by 16%.    

If you want to pay for your education today, the same way people in previous generations paid for theirs, then you’d need to make significantly more money than they did or take on significantly more debt. So how do you know if you need additional income or not?

Look at Your Monthly Expenses Compared to Your Income 

If you earn below-average wages but have monthly expenses that are average or above average, then you are likely going to need additional income. The math simply doesn’t work if your expenses each month require above average wages because it will lead to you living beyond your means and incurring debt over time. In some cases, people are willing to live in this situation for a short period of time because they know that their wages will increase significantly in the foreseeable future. 

For example, a friend of mine who’s finishing up her residency program at a hospital knows that she’s currently unable to pay for her monthly expenses with her earnings as a resident. She’s taking on some debt until her residency is over in order to cover her basic needs now and she simply does not have time to earn additional income because she works around the clock. But, once her full-time salary as a doctor kicks in, she’ll continue a lower-cost lifestyle in order to aggressively pay down her debts and then she’ll be able to live comfortably earning six-figures. That is above average for a single woman in America in her late 20’s, so she will have no real need for additional income unless she really wants to accumulate wealth even more quickly. 

Think About How Aggressively You Want to Be to Pay Off Your Debt

If you’re in debt, experts recommend spending 10% of your wages each month to make payments that will decrease your debt. If you can afford to do that, but doing so will not lead to you being debt-free in a reasonable period of time, then you may need to secure additional income! The average person in America would need about 2 years to get out of credit card debt, 6 years to finish paying off a car loan, 15 years to pay off student loans, and 25 years or more to pay off a home mortgage loan. You may have no interest in being as aggressive as the average person described in these cases, but if your debt repayment plan will take significantly more than the average time frame listed here, then you may want to reevaluate. 

Being more aggressive might consist of you getting the additional income that you can put towards debt repayment which allows you to get rid of debt faster, but more importantly, it will lead to you saving significant amounts of money on interest fees across all of the types of debt mentioned here and beyond. Those dollars that you save can then be used for whatever it is that you’d like to use them for! You can contribute to your next vacation, to your child’s college education fund, go on a shopping spree or add funds to your own retirement account! Freeing up money is never going to be something you feel bad about. So the more you can manage to free up or save, the better!

Finally, if you want to be an aggressive accumulator of wealth for any reason at all, you will want to bring in additional income. Accumulating wealth requires you to eliminate debts or liabilities and increase assets that generate income or profits such as investments in real estate or the stock market. The average American has a very hard time investing in the stock market without a workplace retirement plan that they can sign up for and contribute to automatically and before taxes are withheld. When you look at the reasons why people don’t invest, among the top few popular responses are either that they don’t understand investing or they cannot afford to invest. You can completely eliminate barrier number two if you generate additional income through a side job such as driving for Uber/Lyft, doing online social media marketing or affiliate marketing links on websites, generating lots of traffic to a youtube channel, blog or podcast, working remotely as a virtual assistant, and so many more! 

In this day and age, the list of opportunities to generate additional income is endless. But, it will oftentimes cost you your most valuable asset which is your time. If you desire to spend your time doing things you want to do that do not generate income such as volunteering, then you may ultimately choose to ignore the financial experts who recommend you increase your income by working multiple jobs. Ultimately, this is a very personal choice that impacts your financial situation, but also intersects with many other aspects of your life. It is up to you to make the final call about whether to take on extra work for extra pay or not.