The percentage of Americans who take on more than one job has been rising over the past twenty years. The US Commerce Department has revealed that 7.8% of American workers had more than one job during the first quarter of 2018, which is up from 6.8% in 1996.
Whilst this might seem like a small proportion of the population, what is significant is that of those workers with more than one line of work, the earnings from the second job made up an average of 28% of the person’s pay packet.
Is it worth getting a second job? This research certainly suggests that the earner is reliant on the income from their side gig to make ends meet.
If the pandemic has changed your work status or financial situation, then you might be considering taking on an additional form of work.
But what are the benefits weighed up against the pitfalls? Let’s take a look.
How will a second job impact your tax payments?
America uses a progressive tax system, meaning that essentially the tax rate will increase the more that you earn.
So, do you get taxed more if you have two jobs? This depends on what tax bracket you fall within.
There are currently seven different tax brackets of 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Each bracket has an upper earning limit so let’s take the 12% bracket as an example.
If you earn between $9,876 and $40,125 then you fall within the 12% tax bracket.
The IRS is interested in your total earnings so it doesn’t matter if you have one job, two jobs, or five jobs.
So long as you don’t earn any more than the threshold of $40,125, then you’ll pay a 12% rate of tax on your overall earnings.
Sounds simple, right? But let’s imagine that you earn $40,000 in your main job and want to take on a second part-time job from which you will earn $5,000 from.
As your total earnings will now be $45,000, then you’ll now be pushed into a higher tax bracket which is also known as your upper marginal tax rate.
Now, for those people who earn between $40,126 and $85,525, you’ll pay 22% of tax on the portion of your earnings in this higher bracket.
Please note that these numbers are adjusted slightly depending on whether you’re single, married, and filing jointly or the head of the household.
So, is it worth getting a second job? If you’re trying to figure out the answer, make sure you take note of your current financial position and work out how much you might lose in tax if you were to shift into a different bracket.
Whether it’s worth having a second job will depend on a case-to-case basis, which is why it’s essential to break down the figures before you take on extra work.
Broadening your skill sets
If you take on a second job, it doesn’t have to be related to your main source of income.
In fact, it can be entirely different. If you work a desk job but want to freelance at the weekends as a trainee electrician, then you’re effectively learning a new trade.
When you learn new skills and are gaining experience in a different industry, you’re future-proofing your career.
If you’re made redundant or your entire niche takes a hit, which has been seen throughout the pandemic in sectors such as retail or food service, then having a backup career is an excellent option.
Getting out of debt quicker
Being in debt is part and parcel of life for many Americans who typically rely on revolving debt such as credit cards, alongside non-revolving debt such as auto or college loans.
Consumer debt hit a record high in February 2020, right at the beginning of the pandemic, when a figure of $4.2 trillion was reached.
The good news is that this type of debt has reduced slightly during the pandemic, as consumers are no longer maxing out their cards.
On an individual level, a second job helps to reduce financial problems.
By working a second job on top of your regular 9-5, you can pay down your credit card faster.
If you’ve been living in a cycle of paying only the minimum payment each month, then it’s important to chip away faster at the balance.
Make your money go further by arranging for your new income to pay down your debt using bi-weekly payments.
If you owe $400 a month, then ask your loan provider if you can pay $200 every two weeks instead. This clever trick will make sure you make 26 payments a year, equalling 13 monthly payments instead of the standard 12.
Using savvy techniques such as these ensures that a second job is worth the effort.
Reach your savings goal
A second job will allow you to make excellent progress on your savings goals.
In an ideal world, you’ll be debt-free and able to plunge all of the income from your second job into a savings account or investment vehicle.
There are plenty of reasons why people want to use a second income towards savings, including:
- Moving to a bigger house
- Buying a new car
- Saving for college
- Starting a vacation fund
- Setting themselves up for retirement
- Better healthcare
If you find it hard to set aside money for savings from your main job then taking on a second job is the natural solution.
Regularly adding to your savings through taking on extra work is made easier with compound interest.
Essentially, compound interest is interest that you’ve earned on top of your previous interest. In a savings account, you’ll be offered a rate of interest on the money you hold there.
Unfortunately, interest rates on savings accounts are extremely low at the moment and you’ll be hard-pushed to find much more than a 0.5% deal.
However, as time pushes on and you keep adding to your savings with your secondary income, then your pot will continue to grow, not just through the regular contributions you make, but also with the help of compound interest.
Limitations of a second job
So, is having a second job worth it to you? This depends on your lifestyle, your wellbeing, and of course your current financial health.
If you’re already burning the candle at both ends in your main job, it might be next to impossible to squeeze another job into your week.
Other people think of a second job as more of a hobby as they get paid for doing something they love.
But once you factor in your family and social commitments, it might seem as if a second job just isn’t worth the hours you’ll lose.
If this is the case, then why not explore different ways to improve your first job? You might consider asking your boss for a raise or a bonus.
Alternatively, why not look around to see if other companies are offering a better wage than you’re receiving?
If you’ve asked the question ‘is it worth getting a second job?’ and decided the answer is no, then there’s another way to swerve taking on extra work. That’s to see what household budget cuts you could make to ensure that your primary source of income stretches just that little bit further.
The Finances Hub offers a wealth of personal finance advice to help you manage your incomings vs outgoings and reach your financial goals. Check out our blog for expert guidance and download your FREE template to help you make your first $5,000 savings in just 52 weeks.