How you can choose a tax bracket
(MoneyWatch) It's a truism of personal finance: most people can't substantially boost their income. Therefore, you have to figure out how to divvy up your pie, figuring on a 3 percent annual raise at most.
But as the labor market changes, this truism is becoming less true. So suggests a new survey by Elance, the online marketplace for freelancers. Of the 3,000 freelancers the company surveyed about their income and working lives, 19 percent had managed to double their income year over year -- something that's almost impossible in traditional employment, notes Elance CEO Fabio Rosati. In a normal job, he said, "You are pegged against a salary structure in a company that is carefully measured against what a company thinks it should pay for a particular set of skills. It's really hard, once you're pigeon-holed to one particular area, to change your revenue potential by that much."
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Go out on your own, though, and every project is a new negotiation. You can raise your rates quickly given strong demand for your services, pitting potential clients against each other if they want access to your skills. If you want to make more, you can work more hours. Income becomes more of a choice.
Once you start thinking of income as malleable, your whole perspective on time and money changes, Rosati said. You start thinking that "every precious minute can be turned into money. Every productivity gain can also be turned into either money, or time available for other things I want to do in my life." Set an income goal of $250 per day -- if you earn $500 one day, you can spend the next day at the beach. Driving around to different stores to save $10 on groceries also starts to seem silly if you know you could use that hour to bill an extra $50.
Of course, if it's possible to double one's income, the reverse is also true. Few companies would cut a full-time employee's salary in half (though they can always lay you off, thus cutting it by 100 percent). Freelancers' income can fluctuate a lot. But as with the stock market, high risk can equal high returns. Or at least a more pleasant life: 70 percent of the freelancers Elance surveyed are happier with the free-agent life, and 79 percent say they're more productive than before.
Have you ever changed your income by much?
Photo courtesy of Flickr user epSos.de