How to Make Six Figures

3 ways to make a six-figure income

A “six figure income” means earning $100,000 or more each year before tax. Having a six-figure income can be a serious game changer for your family, your finances, and your future financial health.

For the financial year ending 2019 – the most recent period the IRD provide data for – only about 12% of the New Zealand workforce earned a six-figure income, which is about 6% of all Kiwi’s. (Noting that children, retirees, and the unemployed aren’t included in the workforce).

While earning more than $100,000 might sound great, how far that sum can go depends on the circumstances. Some people can have a high income and not necessarily be wealthy, or vice versa. A young couple saving for a home with one fulfilling stay-at-home parent duties, and the other earning $100,000 probably won’t feel as well-off as a retired couple living in a freehold home with total income from investments of $80,000.

$100,000 Income Might Not Always Be Enough

For those getting by on much less than $100,000 this heading might sound a little off! But the resurgence of inflation over recent years has devalued all of our hard-earned dollars, not just those on higher incomes.

In New Zealand, tax brackets increase as you earn more, so as your earnings increase you will take home less of each dollar you earn.

Housing in the major centres is widely regarded as pricey relative to incomes, and even even government policies seem to suggest that $100,000 isn’t always enough:

• A quarter of all households earning between $100,001 and $150,000 receive some sort of taxpayer-funded welfare, these figures exclude NZ Superannuation – commonly called “the pension”.
• On top of that, the most recent data available shows that 18.8% of households with a total income of more than $150,991 receive social welfare such as; working for families, accommodation supplements, jobseeker support, sole parent support and student allowances.

The Milestone

Despite the numbers above, breaking into the top 6% of Kiwi’s is a huge milestone for most who achieve it. Be proud if you are already a part of this group – or if you ever do reach this milestone.

Six-Figure Challenges

Everything in life comes with challenges, including earning more.

First, there’s a little issue called lifestyle creep. Having more income is great if you can keep your cost of living similar to what it was before the increased income. However, many people start to upgrade their lifestyle and soon need more money to cover expenses and luxury items that might not be necessary. So, you might be earning great money, but spending just as fast, slipping into a “paycheck to paycheck” lifestyle.

Another challenge is your environment, including where you live. Some non-homeowners earning a low six-figure income still might struggle in places like Auckland or Tauranga, which were recently confirmed as having the costliest housing in the world relative to average incomes.

Why Earn Six Figures?

Before goal setting for that lucrative $100,000 income, think about why do you want to earn it? – Genuinely ask yourself this and write down what it might mean for you, your family, and your overall wellbeing.

• Do you think it will make you happier?
• Is it so you can buy more stuff and impress others?
• Are there other reasons?
• Or, is it to help you build financial freedom, and maybe not have to bother about money issues?

If you don’t ask yourself the tough questions, you could just find yourself working long and difficult hours to hit this income level, possibly in a high stress or high risk role, and one day realise that’s not really what you wanted at all.

Three Ways to Achieve a Six-Figure Income

Once you’ve completed the little exercise above and confirmed you want to set your sights on a $100,000 income for the right reasons, let’s explore the top three ways to achieve it.

1. Career

Your career is the first place to start – this includes being self-employed.

Hardly any jobs will pay you $100,000+ right away, and the ones that do require many years’ worth of expensive training – such as being a doctor! For most, earning a six-figure salary takes time, experience, and plenty of hard work to reach.

While choosing a career path can be tough, if you’re young, the main thing is to ensure you’re in a growing and resilient industry. That should ensure your skills remain relevant as new technology emerges and innovations occur, and if needs-be, in years to come if things do change you can always pivot your career path still within that growing field.

Getting this right reduces the risks of unexpected layoffs, downsizing, economic troubles, or a company bankruptcy. You can also reduce these risks by ensuring that you’ve got valuable skills and knowledge – positive and energetic people are one of the seven groups of people likely to emerge as winners from the current downturn.

If you find yourself struggling in your current career, consider:

• Ask for a raise, or better yet, ask your boss what you need to do to get a raise!
• Are you in the right field? If not, it’s time to think about shifting to a growing sector of the economy.
• Can you gain more qualifications or skills to be more valuable?

2. Side Hustle

It can take a long time for many people to build up to a $100,000 plus each year, which is when having another income stream to add to the flow can be invaluable. This is sometimes called a “side hustle”, and there are two differing opinions in this area. Let’s explain:

1. Side hustles can be worthwhile. If you’re in a low-paying job or find yourself in a field with limited advancement prospects, a side hustle can help you build income faster – possibly filling a gap as you retrain for a different field. The options are nearly limitless and could include: importing minor items then re-selling them online, dog-walking, cleaning, a second regular job, starting a blog, mowing lawns, freelancing and contracting – such as driving for Uber. Creative people might be able to sell their own artwork, handmade furniture, music, and so on.
2. Side hustles can be a distraction. Alternatively, if you’re in a good role in a growing field, you’re probably better off focussing on your primary skillsets and career. The most wealthy and successful people the world over usually got there by focussing on one primary thing, at least to begin with. There might not be much point in a young lawyer – or other professional with good prospects – spending 10 hours every weekend working on a blog or walking other people’s dog’s for cash. Instead, the young professional will surely be better off using that time to develop more skills that can be applied to their career, perhaps by learning more in specialist areas of law, or by working 10 hours overtime to get promoted faster.

3. Investments

Investments are when your income really gets working for you.

With many investments the income they generate is reinvested. KiwiSaver is an example of this. Nearly all KiwiSaver Scheme funds have some exposure to shares. Many of these shares will pay income to shareholders (i.e. the investor in KiwiSaver) as a dividend, but this is just reinvested by the KiwiSaver Scheme manager into more shares and other investments. These shares and investments earn more dividends and income – so your income starts earning income! This powerful force is called compound interest. Reportedly, Albert Einstein said that:

“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

While there is a little debate about whether Einstein said this, it’s undeniable the power of compound interest is remarkable.

When you’re first getting started, your investment income will not be a huge contributor to helping you reach a six-figure income. But the more you invest, and the more time passes, the more you’ll see this income rise until it reaches game-changing levels.

Don’t worry if you can’t afford to invest much or at all right now, there are plenty of great investments out there, the key is to:

• Start early, and
• Keep going.

If you do, what starts as a trickle of investment income will steadily turn into a raging torrent.

The Bottom Line – A Six Figure Income

Your career will usually be the biggest earner for many years, but you can also get to a six-figure income with a combination of your full-time job, side hustle, and investing.

Earning a six-figure income can have major benefits for your life and future, but remember that:

• Many people have built wealth on much less income.
• If you want to build true wealth and happiness, that really comes from your personal lifestyle, outlook, and how you live.

If you have the right mindset and have specific goals, making $100,000+ each year can do wonders for your finances.