Money Coming In

Finances – Income – part 1 of 2

As, I explained within my Financial Security Intro, the first topic I’m going to examine is income or ‘money coming in’. I’ll cover different types of income, as these may be increasingly combined in future as part of the so-called gig economy. I’ll also briefly highlight some tax implications along the way, although these may merit their own separate article at some point.

This is another topic on which I have a lot to say! To make it more digestible, I’ll post this article in 2 parts. In the first part, I’ll look at more active or labour-intensive sources of income, and in the second part, I’ll look more at passive or capital-intensive sources i.e. how to make your assets work for you.

How much is enough?

Before I start though, it may be interesting to learn more about current income levels. The median UK household disposable income was £26,300 in the financial year ending 2016 (2015/16); with income of retired households £21,800, compared to non-retired households of £28,500. Although not entirely relevant for non-UK readers, I’m sure you’ll get the idea.

If you’re not already aware, at some point it would be useful for you to understand how much money you have coming in today, and how much you might need in the future to support your dreams. If not, how will you know where to aim? – refer back to my Vision article. For some people, income may be pretty consistent and continuous i.e. via employment, but for others this could be much more volatile e.g. for those self-employed or relying on investment income.

Active forms of income

I’ll examine below the more active or labour-intensive forms of income, including Employment, Services, Trading, Creativity and Performances.

Employment

There are various types of employment: being directly employed by a business (on a permanent or temporary contract), contracting, self-employment, agency based etc. Work may be full-time, part-time, flexi-time or even zero-hours. Each of these variations have pros and cons and different rights and entitlements, so it’s definitely worth checking the details to understand where you stand. The HMRC website includes a useful summary. Employees typically earn a wage or salary for time worked, but may also include other compensation including bonuses, commissions and pension contributions, as well as a range of other potential benefits including a car or car allowance, housing allowance, health insurance, life insurance etc. As attractive as these sound, there may be Benefit in Kind (BIK) tax consequences of receiving these benefits, so it’s advisable to understand these upfront as they could affect your take home pay or leady to tax payable at a later date.

Services

Another key source of income is where you charge a client, either for time spent or for completion of a task. These are often service based and can be wide ranging in nature e.g. cleaning @ £10 per hour, gardening @ £12 per hour, full body massage for £40, windows cleaned for £20 etc. Such service providers (or entrepreneurs) may be self-employed e.g. as a sole trader or via a limited company, or they could be charging ‘cash in hand’ potentially not declaring their income to the taxman (an illegal practice by the way).

Trading

Another common source is income gained through trading or commerce i.e. buying and selling. Historically this would have taken place via a shop or a market stall, from a van or even door to door. In the last 10-15 years, online channels have become increasingly popular. ‘Markets’ such as eBay, Amazon Marketplace, Google Shopping etc., have brought together buyers and sellers to facilitate transactions, taking a cut of profit for themselves of course. An alternative is to become a distributer (sometimes exclusive) for a foreign brand, helping to break into a niche market by distributing something desirable, rare, different, cheaper etc. I found a great article summarising the tax implications of such trading activity.

Creativity

This could involve creating something from scratch e.g. art or craftwork, poetry, books, jewellery, food items etc. and selling them via traditional forums or more modern ones as above. Alternatively, restoration or taking something basic and enhancing or personalising it could be another slant on this e.g. painted crockery or Lego figure picture frames. The output could be based on the designer’s design or the customer’s wishes or requirements e.g. photographs – commissioned or other, and made to order birthday cakes. Items could be sold via traditional or online market places, as mentioned in the Trading section above.

Performances

Many performances might be given for free, either from the love of the performer or as an investment to build up experience, a reputation, or a ‘following’. Some performers may be able to charge a fee such as for training, singing, dancing, musicians and other entertainers for weddings or work or children’s parties etc. There are also speakers, either those having made their name e.g. an author, a retired sportsperson etc. or those termed ‘motivational’, who can typically charge a decent amount speaking at an event, often for quite a limited duration. There are agencies that manage such bookings.

Wrap-up

So, that’s all for part one. I hope some of these sources of income sound familiar to you. Part two will look at more passive sources of income including Investments, Asset related, Property rental, Gifts & Inheritance, Pensions and Winnings.

 

Thank you for reading. For more interesting articles, visit my blog at www.agelifebalance.com to learn more.