For the uninitiated, “So, Inju, How do I increase my Income!” is the fourth blog post in the Personal Finance series. The first three are primarily about an important concept called Money Trail and using the concept of Money Trail to reduce expenses. They’ll get you familiarized with the concepts and set you up for this post. Here are the links to #1, #2 and #3 posts of the series.
Okay! Inju, I figured reducing expenses isn’t my thing. The spending patterns are part of my identity. And before you say anything, let me put this in front of you, It’s a conscious choice I am making. I love this lifestyle. Having said that, I also want to save money for the future by giving myself the freedom to do whatever I want with my time.
Hahaha!! I knew this was coming. The change in perspective about money helps a majority of the people reduce their expenses and improve their relationship with money. But, there is still a good percentage of the population who want to retain the same lifestyle. So, it’s imperative to find a middle ground. One where you’re saving enough for a future that enables you to live on your own terms but also not letting the “money-saving” get in the way of your lifestyle. Basically, having the cake and eating it too.
The Middle Ground
Right On, Inju. You got me there. So, How do we do this? How do I have the best of both worlds?
Hmm, that’s actually not a very difficult thing to do. In fact, you already know that. I mean, how to increase your income. You already know that right?
Wait, what? Do I look like an idiot to you? Why would I ask you if I already knew?
Hahaha! I meant to say, if you’re making money right now, then there was a point in your life when you didn’t make a single rupee. So as a matter of fact, you already know how to make more money. Much rather, you’re quite knowledgeable on how to increase it too.
Okay, now you’re just making me feel stupid! I’m done with you!
Woah! someone is getting to see the bitter truth about their finances and that’s giving them a hard time. It’s quite natural to get frustrated about your financial situation and lifestyle choices. I have been there and trust me it’s a nasty place to be. We all want to have fun, live that YOLO life but bro it costs money. But as I said, there is a middle ground.
It’s tough but it isn’t impossible. Let me break it down for you.
One of the key points I discussed in the blog post to dive deep into the concept of money trail was this formula.
There are a number of avenues to increase your income. But, ultimately, there are only two ways to do it coz there are only two ways in which you can make money. And No, they’re not robbing a bank & gold reserve like “The Professor” of Money Heist fame.
Two Ways To Make Money
Interesting, Inju. What are those ways?
- The Active Way Of Making Money
- The Passive Way Of Making Money
Active or Passive is in reference to the time you spend on such income sources.
Amazing, I think I heard these terms before. Tell Me More.
The Active Way Of Making Money.
An active way of money required you to constantly spend your time to get the income and I believe a majority of us do this. A classic example is doing a job. You spend the entire month working and at the end of which you’re paid for the time you spent. So, whichever source of income requires/mandates you to constantly spend time in return for money is an active income source. When I say job, I am referring to the one where you’re part of a company, essentially an employee. We’ll discuss about freelancers after discussing ways to increase income from a job.
Increasing Income From A Job:
You may have heard of things like Hikes & Promotions, etc at your office. If your company is anything like normal, then increased income due to Hikes & Promotions are a common sight. So, there are primarily four ways to increase income from a job.
Can you explain them in detail?
Sure thing. Let me introduce you to Alex, who has experienced all of what I want to say.
Option #1: Switch To A Different Company:
Alex is a Mechanical Engineering graduate and is working in an Automobile Company. One of the largest in India. He was recruited right after graduation and the workplace provided exciting opportunities. Although the work was quite exciting, the salary wasn’t enough to meet his financial goals. So he switched to a different company and increased his salary. That’s a sure shot way to increase your income by a good margin.
This usually comes with little to no effort in terms of upskilling yourself. Often you can search for jobs in your domain expertise. But, Of course, you have to take the pain of scouting for opportunities in other companies. Spend months on interviews and negotiations.
If you think that’s too much of a work, then keep reading.
Option #2: Promotions:
Now Alex joined an exciting startup. He was pumped up to be in a new environment which challenged him regularly. With this new bound excitement, Alex picked up a lot of tasks and crossed them off one after the other. Like a Ninja warrior. Looking at his performance, he was promoted to the next level and he got a good raise. So the second way to increase income is to perform exceptionally well and earn a promotion.
Typically, consistent best performers get promoted quickly. While this comes with a good hike, you are most likely gonna end up taking more responsibility. So ensure you’re not letting your personal life get affected because of the promotion. Even though the hike can be handsome, it usually is still less than something you would get from switching to a different company.
Option #3: Hikes:
With increased responsibility and excitement, Alex continued to do a great job. Because promotions are limited and time-bound in nature, Alex was rewarded with a hike instead. The Hike increased Alex’s income once again.
Getting a hike is by far the easiest way to increase income from your job. Hikes increase your income by a certain percentage depending on your performance. They do not necessarily result in an increase in responsibility. So, perform better and demand a hike you want. A good approach for this is to understand the conditions from your manager on the level of performance that would result in a hike you are aiming for and work towards it. Don’t leave even an ounce of subjectivity in the conditions. There are a ton of articles online to help you negotiate a better hike.
Option #4: Learn A New In-Demand Skill
Now, Alex has spent over 6 years doing a similar thing over and over again. He knows the job in and out. He doesn’t find it exciting enough now. Alex speaks to his friend Ramesh. Ramesh was his batchmate from college. After experimenting with various career paths, Ramesh figured out that the Data Science field was booming. It was all set to be the most in-demand skill and he started learning Data Science. Within a year he mastered it and landed a job as a Data Scientist. Because the skill is in-demand, he was able to demand a hike at his current job, and also the market was open to paying much higher for someone of his expertise. Alex gets inspired to pick up something new and learn.
This is probably the most challenging one among all the above options to increase income. But if you ace it, then the returns are lucrative. It’s a well-known fact that the market tends to pay more for jobs that are High In Demand- But Low In Supply. Basic supply-demand principles at play here.
I didn’t know I had so many options! Thanks, Inju.
Oh! Sweetie, we’re not done yet ;). As I said, there’s a whole world of freelancing in the active ways of increasing your income.
The World Of Freelancing
A corporate desk job may not be everyone’s cup of tea (or Coffee :P). So, people who look for independence in terms of their work or location, tend to become freelancers. The best thing about freelancing is independence, which means you can take up a freelancing job alongside your regular desk job. You, just to get the ball rolling.
Interesting, what kind of jobs are available for a freelancer?
There are many wide varieties of freelancing opportunities. You can pick the one that you’re good at. For example, I am very passionate about writing & travel. So, I became a travel blogger and wrote articles for Plan The Unplanned in return for travel sponsorship. I used to spend the evenings writing the blog posts and weekends traveling ;). Sweet ain’t it?
Another friend of mine, Tista is very good at web development. She was able to get a freelancing gig from a company in the US. She spends the time after office hours to deliver the client’s requirements and earns in dollars. Earning in dollars and spending in rupees. What a Luxury I say 😉
The only downside of doing a second gig is the fact that you’ll be overworking yourself and it can be mentally draining sometimes. After office hours are mostly pre-scheduled and you won’t have much freedom with your time. But hey, this is much better than wasting your time watching TV series right ;). And better yet, you can choose to not take it up if your regular job is quite draining already.
Amazing, Inju. So, where do I find such opportunities?
If you’re skilled in anything and want to make money out of it. There are a number of platforms where you can get such freelancing gigs. Since I am into Writing & Photography, below are few of the platforms that I have personally used in the past:
- Freelancer [For Pretty much every Freelancing Gig you can imagine]
- Fiverr [For Pretty much every Freelancing Gig you can imagine]
- Tapchief [Majorly Content Writing]
- A number of Photographers I know do Photoshoots over the weekends.
Amazing Stuff!! I’m a painter. Do you think there’ll be something for me?
Sure. You should find a good number of people looking for painters. Although there may be websites dedicated to freelance painters. But check them out too.
Awesome!! Now, what is this passive income stream all about?
The Passive Way Of Making Money!
So, if Active Income requires you to keep spending time to keep earning money, passive income doesn’t require your constant attention or effort. These sources are expected to keep minting money after an initial setup time and effort. Let’s call them assets. Assets are anything that keeps putting money in your pocket, even though you don’t spend a lot of time on them regularly.
Money without spending time? Oh!! goodness. Where were you hiding this beauty all along?
Hahahaha!! Don’t get excited yet. Although it is very enticing, building assets is no easy game. If it was so easy, then you and I won’t be relying on active income sources.
There’s no such thing as free lunch in this world.
Building these passive income streams or assets requires upfront capital investment, a significant human effort in taking it off the ground, and growing it. But once you’re done setting it up, it is a money minting machine which only needs maintenance once in a while.
Yeah, sounds about right. So what are these passive income streams like?
What is Passive Income Stream?
Simply put, a passive income stream is a toned-down version of the business. You invest money & human capital and it returns the money. It’s a tested formula for ages and there’s no doubt in saying that business is the way to get rich. Owning a part or complete business will give you returns that won’t match your lifetime earnings from a job.
Really? Something that doesn’t require much of my time beats my earnings from my job?
Well, Yes. That’s essentially what I am saying. However, not all ideas are worth the same, and not all businesses are created equal. So depending on what kind of business you’re building, your income and effort vary.
Let me explain with an example to help you understand how income from business outweighs income from a job.
Larry Page who is the Co-Founder of Alphabet (Parent company of Google) has a net worth of US$ 53.6 Billion whereas the company’s top employee, Sundar Pichai, the CEO of Alphabet (Parent company of Google) has a net worth of US$ 610 Million.
Similarly, Bill Gates, the co-founder of Microsoft has a net worth of whopping US$ 103.1 Billion whereas the company’s top employee Satya NadellaUS$ 387 Million.
I mean absolutely no disrespect to either Mr. Nadella & Mr. Pichai and have huge respect for what they’ve done. Reaching the apex position of companies that run the world is no easy game.
But my only point is if you really wanna increase income and get rich, to live a lifestyle you want, have the freedom to do whatever you want, owning a piece/whole of the business is the way to go.
I mean look at what Mr. Gates is doing with his time. Leading the war on COVID-19 alongside solving many of the world’s problems. Massive respect, but you and I can’t think about doing those because we constantly have to trade time to make money.
Understood, but not everyone is Bill Gates, so are there passive income streams for normal people like you and me? People, who want to put in the effort but don’t necessarily have great ideas?
Of Course, that’s what the next section is all about.
Types Of Passive Income Streams?
If you google passive income streams, there are 100s of ideas floating around in the grand internet universe. Keeping the specific ideas aside, I can say with certainty that all of them fall under just two simple categories.
- A Product-Based Passive Income Stream
- A Service-Based Passive Income Stream
Although companies like Google & Facebook are also Product based companies, their business model is a little tricky to understand. So, I’m leaving the discussion on internet companies for a later time. Now, let’s try and understand how Product & Service based companies differ from each other.
Product Based Passive Income Stream!
Products are all around us. While I write this, I’m constantly interacting with a number of products. The Mattress I am sitting on, the study table on which I am resting the laptop while I type these letters, the laptop itself, and the earphones I’m plugged into. A Product Company makes money by selling a product to a person/company who wants the product.
So, you sell a product and you make money.
But, How do I know which products to Sell?
Let me give you an example of another friend of mine, Poornima. Poornima was enthusiastic about creating a passive income stream to fulfill her traveling goals. She started reading up about various passive income ideas and particularly, dropshipping (More on this idea in detail later) caught her eye. After extensive research about what product to sell, she found a niche segment in selling a particular variety of gifts for Christian occasions.
Simply put, you should spend time to figure out what market you want to target and which products to sell. There’s no readymade lunch in the world of business but you can start with your interests and see where it takes you.
Fair enough!! If I already have a product Idea, what’s next?
The approach is different if your product is physical product or a digital product.
If you have a physical product idea, the next step is to figure out a manufacturer and a medium to sell your product.
A manufacturer would take the design of your product and produce multiple copies of the product at a price. Now, typically people who don’t want to deal with inventory hassle go for Chinese manufacturers who offer manufacture and ship a product as and when an order is placed. This process where the seller doesn’t have to store inventory is called dropshipping. Next, you can sell these products through websites like amazon.com or Shopify.
The difference between what you pay for the manufacturer including any marketing expenses and the price at which you sell the product is your net profit and income. Over a period of time, you can spread into multiple product categories to increase your income.
What if it’s a digital product?
Yes, coming to digital products. Just to simplify the process, I will take an example of an ebook.
Let’s say, I write an elaborate e-book on managing personal finance. I have a digital product ready. The next step is to figure out how to sell it.
There are multiple ways of doing it. One is to take the e-commerce route. Put the ebook for sale on amazon store or other ebook-selling websites. Secondly, I could build a community around the product, say a community for personal finance, then sell the product or much easier to join a community about the topic you’re writing about and then sell.
If you’re scratching your head about what products to sell, Just google, “Passive Income Streams” and you’ll get a ton of ideas.
Wait, before you continue, I’ll just take a quick detour to discuss an important note here.
All the ideas I discussed above are not really unique or new. You’re just replicating something someone has already done. Probably make minor modifications and sell.
For example on the e-book I spoke about, I am not necessarily gonna reinvent the subject of Financial Intelligence. At one point in my life, I struggled with my finances and wanted to improve them. The whole idea of that book or even this blog post is to help people who are in similar situations. So, before turning to google for a run of the mill ideas, I suggest you look into your own life.
Observe what problems you have in your life. Chances are good many around you also have that problem. Then figure out if they’re willing to spend money to make that problem go away. If they do, you have a great shot at making money. If they don’t move on to the next problem. The best thing about this approach is that at every point, the product you’re selling is solving a genuine problem. It is not “just” another product but something that you strongly believe in.
A good example is, Ola & Uber. Before the advent of ride-hailing platforms, access to a car was a dream for many in India. It involved high upfront costs and a burden of maintenance and sky-high interest rates. By bringing in a ride-hailing platform, I can essentially enjoy all the perks of a personal car without the burden of maintenance and capital costs.
So, I urge you to look into your own life. Think about the problems you have and use technology to solve it. There are chances that you may end up building a unicorn. On that note, I wanted to share this story about another friend of mine.
Fabrics By Deepthi!- Manninda Mannige
Here’s a story of my friend Deepthi, who is turning her passion towards textiles and dyeing into a business. Deepthi has been experimenting with fabric dyeing using synthetic dyes right from her college days.
Being conscious about the environmental damage of synthetic dyes, she turned towards natural dyes for dyeing the fabrics. She learned basics of natural dyeing from Weaver’s Service Centre and learn about ready to use natural dyes from a workshop at Colorashram.
Armed with this new-found knowledge and keeping the idea of “manninda mannige” (meaning “From the Earth Into the Earth”), she started dyeing fabrics, primarily from home, and continues to educate people around her through workshops. You can follow her journey here.
Currently, she borrowed money from family to start dyeing on a small range of products that she intends to sell at exhibitions. So with a dual business model of selling products and educating/training more people through workshops, she is setting her venture up.
Let’s take a leaf from Deepthi’s book and work on turning our passion into profitable businesses.
That was an inspiring story. Now can you also shed some light on service-based passive income streams?
Service-Based Passive Income Streams
I remember a quote, “If you’re good at something, never do it for free”. This is the backbone of service-based companies.
Let’s get back to Tista from the freelancers’ example above. Tista has been doing web development for a client. She’s doing it really well and the client refers another client to her. But Tista can only do so much by herself, so she pulls in a friend of hers to service the second client’s requirements.
Over a period of time, these clients spread the word about Tista’s skills and remarkable deliverables. More clients approach Tista for work and Tista now starts to hire people to service these clients. With a remarkable delivery record at the center of it and customer satisfaction at the top, Tista builds a service-based passive income stream. Once it becomes big enough, she could even quit her job and focus on growing this business and who knows it might become the next TCS, Tista Consultancy Service 😉
Woah! That sounded like a short intro to service-based companies.
Can you give a few more examples of service-based income streams?
Hahaha!! Yes, it was. Sure, let me walk you through a few examples.
- Investment/Financial Services
We discussed web development/software services above. The Second one that strikes my mind is Investment/Financial Services.
Warren Buffett, the fourth richest man on Earth as on date, had his humble beginnings in investment services. Mr. Buffett learned a great deal about financial instruments and investing from Benjamin Graham. He then figured out ways to earn higher returns with his money. Then he invited more families to give him their money and in return, he offered attractive returns. He created a company called Buffet associates and essentially offered to grow people’s money by charging them a nominal fee.
- Digital Marketing Services
Adults in India, on average, spend about 4 hours on internet in India. Many brands are adapting to this new reality and turning to social and digital media for grabbing the attention of consumers. So if you’ve mastered any of the digital marketing services, like SEO or running campaigns on any social media, then this is for you. There are Digital marketing firms springing up in every corner of the internet so be sure to offer something unique to your customers.
All of this is so over-whelming Inju.
Haha, It is indeed. But, the specific ideas I discussed are only ways that I am aware of and I am sure I am just scratching the surface.
But, Inju, what If I am not really cut out for starting even a passive income stream, what do I do?
So, you are saying, you don’t want to reduce your expenses because spending money is your identity. Then you don’t want to start any businesses or take up freelance gigs to make more money, and you’re asking me if there are other ways of making more money?
Umm…yeah, that sounds about right. Is this possible?
Absolutely, the world is an excitingly beautiful place. You may not be able to start a billion-dollar company but you can certainly share their profits, all you have to do is invest in them. The best thing is that someone else is working to grow your money while you’re rocking it on the dance floor or binge-watching money heist on Netflix. But, as I said, there’s no free lunch in this world. Investing your money in a company comes with a bit of a risk and effort and that’s gonna be the next blog post. It’s gonna be all about investing and growing your money. The only request I have before proceeding to the next chapter is to save up some money to be able to invest. If you can’t do that, then kiss your secured future goodbye and don’t come back crying if you’re broke.
A Special Note On Tax Saving
Before we part ways today, I just wanted to add a quick note on tax saving.
I look at tax saving in two ways.
Firstly, to save for my long term financial goals. Secondly, figuring out ways from the other sections to increase income in hand.
Though it’s not significant, looking closely at various tax saving options available to you, you can figure out ways to increase the net cash at hand from your salary.
For example, every employee and employer is mandated to contribute to the provident fund. There are two options available for this contribution.
One of the options enables you to contribute a staggering 12% of your basic pay. The second option is a Govt Mandated minimum of INR 1800. Of course, without a doubt, PF is one of the best investing avenues out there. But by choosing the second option, I increase income in my hand. Now, if I can figure out ways to earn a better rate of return than 8.5 % of PF, then it makes hell a lot of a sense to choose the INR 1800 option than the 12% option. On the contrary, if you can’t earn a better rate of return, you’re better off contributing the 12% of basic pay to PF than letting it lie idle in your savings bank account which has a terrible sub-inflation rate of returns.
So, taking a hard look at tax deductions and making some smart choices will enable you to drop more money into your pocket.
Hope this was a helpful post to increase your income. If you know someone who is into passive income streams or has done well in freelancing, feels free to drop in the details in the comments. I would love to get in touch to know more about them and if possible share their learnings here on the blog.
Finally, on a concluding note.
While most of us chase money as if it is the end, please be aware that
Money is only a means to an end and not the end itself.
It certainly gives you freedom to do whatever you want to do in life. So, treat money as a friend, as a guide and as an enabler to becoming a better version of yourself. And don’t forget to leave the world in better shape than you received it.
That’s all for today folks. Hope this was useful for the time you spent.
In case we haven’t met, I am Inju, a resident of the small planet called trailsofinju.com in the internet universe.
I almost forgot, I love feedback and if you have any feel free to drop it in the comments section. No pressure, your choice.
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Asta La Vista,
Until Next Time, Cheers.