Climbing Up the Income Distribution Mountain

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I came across this very interesting video about how incomes are distributed in this country.

We could have discussions until the end of time about whether the issues raised by this video are noteworthy and what potential solutions might be if the consensus is that there are problems raised by this data (and, ideally, that discussion remains a polite one among people trying to create the best possible America, even if people disagree on the way to get there).

What really stands out here is that the wealth distribution chart looks a lot like a mountain. Virtually everyone can look up the chart and see a peak to climb.

I often view goals as being much like mountains. They require hard work to start moving up to where it is that you want to go. This chart is no different – it’s a mountain to climb.

Let’s say, for example, that you’re bringing in about $50,000 a year. That’s the average American household income, putting someone right in the center of the chart. From that same data, you need to be bringing in about $100,000 a year to qualify for the very bottom of that top 20%, and the threshold to climb out of the bottom 20% is about $20,000 a year.

So, to get from the 20% line to the 50% line, you need to jump from $20,000 a year in income to $50,000 a year in income, and to jump from the 50% line to the 80% line, you need to jump from $50,000 a year in income to $100,000 a year in income.

Remember, of course, that this is including all Americans. Local cost of living varies wildly. The cost to live in downstate Illinois is drastically lower than the cost to live in Silicon Valley or Washington D.C. Incomes vary greatly based on location as well, as certain jobs are in enormous demand in some areas and not nearly as much in others.

The question becomes how do you build that income? There are a lot of ways to do it, and they have dramatic impact on your position on that chart. Here are some ways to start climbing that mountain.

A part-time job, even one at 20 hours a week at $9 per hour, can have a tremendous impact. That increases your income by $180 per week, which equates to $9,000 per year. This takes someone at the 20% mark and moves them up several percentages very quickly.

This takes extra time and energy, but it’s a powerful way to get a grip on your current financial situation, paying down debts and reducing your monthly bills so that you can move on to using other tactics.

A side business can do the same thing. Side businesses vary widely in income level, but even one that brings in a few thousand a year for whatever spare time you can devote to it can knock you up a percentage or two.

Building a side business is usually a much longer road, one that doesn’t usually have a lot of immediate returns, but can build into something worthwhile if you stick with it.

Investment income is yet another angle. Let’s say you make $20,000 a year and find a way to put $20 a week into an investment account that returns 7% annually (on average, of course). That’s $1,040 a year. That first year, the account is going to return $72.80, but if you just keep rolling the returns back into the account and adding $20 a week, that return is going to keep growing, going well over $1,000 a year at the ten year mark, $2,700 at the twenty year mark, and $6,300 at the thirty year mark. If you make $50,000 a year and can find a way to put $100 a week into that same investment account, your annual return at the 30 year mark is $32,000.

The simple move of just investing a fraction of your weekly income doesn’t eat up additional time. It just requires some frugality and the willingness to invest the bounty of that frugality.

I consider all three of these to be effective tools for climbing that mountain, depending on your life situation. A part-time job is incredibly powerful for addressing the short-term problems, like debt, that’s tying up a lot of your income. A side business is a great way to channel excess time and energy into building something for the long haul. Investing money is a great way to directly turn a frugal lifestyle into income without adding much time or energy to the equation.

All of these tactics (and many others) will help you to climb that income inequality mountain and pave the way to whatever it is that you want for the future.

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