Setting financial goals: Income

By Thomas Charla
Thomas Charla is director of business markets at MassMutual.
Posted on Jan 3, 2018

The income you make each year can have a direct effect on every part of your financial future, including your savings, your retirement and your ability to pay down your debt.

Since your income is so critical, why not try to make as much money as you can?

Set a goal: 5 percent?

To get you started, consider setting a goal to increase your income by 5 percent this year.

If you are a non-exempt employee (not eligible for overtime pay) working for a company or corporation, your salary is set and any increase you may desire is likely out of your control. This may make setting a goal of increasing your income by 5 percent this year seem unattainable.

But like many similarly employed Americans, you may likely receive an annual salary increase from your employer at the start of each fiscal year. When you view this increase as an integral part of reaching your goal of 5 percent, this increase — which averaged 2.8 percent on 20171 — means that you may start the year having already achieved 40 percent ̶ or even upwards of 60 percent ̶ of your goal!

Why set a goal?

Another way to look at this is how much money you may make during your working years. And a small percentage change each year  ̶  the difference between 2 percent and 5 percent, for example  ̶  can make a big difference over time. 

Consider this hypothetical example:

Camila is 30 years old and makes $75,000 per year. She works for a company that gives employees a 2 percent salary increase each year. Assuming she stays with the company until retirement at age 67 — and does not receive any other merit or salary increase – Camila could potentially receive over the next 37 years a total cumulative income of about $4 million. If Camila were to take steps to increase her income by another 3 percent — or 5 percent total — each year, by the time she retires at age 67 she will have generated about $7.5 million in cumulative income, or almost twice as much.

Of course, the above hypothetical example does not take taxes or other factors into consideration, but it is just used to show the difference even a small percentage increase can make. And let’s not forget that the value of your income isn’t always measured in dollars and cents. Your income helps fund all facets of your life including your home, your family, and your contributions to your community.

These considerations point up the importance of protecting your income as well, since it will likely be the basis for everything you may want to achieve in life. (Calculator: How would a disability affect my finances?)

What can you do today?

To increase your income by 5 percent this year, you probably don’t have to run out to find a second job. But you do need to assess your current situation and seek out opportunities. Possible avenues include:

  • Investigating tax minimization strategies. Many people find changes in the law or their own circumstances open up previously unavailable opportunities to save money. (Usually, it’s advisable to discuss the moves with a financial advisor or tax expert.)
  • Turning a hobby or other personal endeavor into a side business. This can range from selling art or craft projects at a consignment shop to offering fishing guide services on a favorite trout stream.
  • Taking advantage of opportunities in the “sharing economy.” Ride-sharing and spare-room sharing services are becoming more common. (Here, too, it may be wise to consult an expert before taking the plunge.)

Regular income

Increases in income, especially when they are received in lump sums, can easily be misspent. All too often, we see these extra pay days as an opportunity to treat ourselves. But it will be better over the long term if these increases are considered part of your regular income.

Regular income is money that you can anticipate, allocate and budget for – all with an eye toward helping you reach your financial goals. As such, any additional income could be used to bulk up your emergency savings account, or for targeted debt payments (particularly those with higher interest rates), or it can be used to add to your retirement savings.

Of course, income is just one part of the equation. You should have an overall financial strategy that takes into account debt, savings, and retirement considerations as well. (Setting financial goals: The 5-10-15-20 guidelines)

Oftentimes, people consult a financial advisor to establish such a plan.

Ready, set, change.

In the meantime, consider setting a goal of increasing your income by 5 percent this year.

Start by changing the question…

Instead of asking “How much will I make this year?” ask yourself, “How much money could I potentially make this year?”

More from MassMutual on setting financial goals: SavingsDebt, Retirement

Also from MassMutual…

Building your financial pyramid

Two types of investment professional: Which is right for you?

Year-end tax planning moves

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Mercer, “2017/2018 US Compensation Planning Survey,” August 2017.


The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.