Take Initiative to Raise Needed Income

By Janet Kidd Stewart
Chicago Tribune staff reporter

Posted January 16, 2005

Prognosticators are forecasting a good -- not great -- year for financial markets in 2005.

That may be fine for investors focused on long-term returns, but what if you already know you'll need an extra cash bounce this year? It may be time to switch your focus away from the bottom line if you really need to bring home more bacon by year's end.

Here are four target areas that are ripe for boosting the top line, but keep in mind that each comes with a price:

1. Goose your portfolio

Simply shifting money from stocks to bonds for income isn't a slam-dunk this year, given the widely held belief that interest rates are on the upswing. What to do?

One strategy involves goosing income from your stock portfolio, said Bruce Weininger, principal with Kovitz Investment Group, a Chicago advisory firm that runs the New Millennium hedge fund.

Say you own 1,000 shares of Cisco Systems Inc., which are selling at about $18. When you purchased the stock, you vowed to keep it until it hit $20. Rather than cashing out early, Weininger suggests writing a covered call option, selling another investor the right to buy the shares at $20 in six months. If the stock takes off, you've sold your shares at your original target. Either way, you could pocket an extra $550 or so from selling the option, which can be done through discount brokerages or advisers.

"We're also big believers that you can add a percentage point or more to your yearly returns by setting targets and rebalancing every year,'' Weininger added.

Have a big expense coming up later in the year, but you're nervous about what bonds will be doing then? Another simple move is to estimate all your big-ticket purchases for the year and move that money into a high-yielding money market account such as ING Direct, which currently pays more than 2.2 percent.

What are you giving up with these strategies? Longer-term growth potential and, potentially, a lower tax bill, depending on your filing status and the tax status of your fixed-income portfolio.

2. Diversify your paycheck

It sounds painfully obvious, but many people get stuck in their jobs and fail to think creatively about making more money. Of course, the price is more work for the already overworked, but it can pay off.

Elizabeth Handlin, external affairs manager for the Federal Reserve Bank in Chicago, has picked up a few thousand dollars in income since starting a side business last summer helping people polish their resumes.

"I had always done this for friends and really enjoyed it,'' Handlin said. But when a friend went into the Web site development business, she saw an opportunity and formed Ultimate Resumes (www.ultimate-resumes.com).

For $150, she interviews clients about their job strengths, suggests ways to market those strengths and crafts the resume. Beyond the extra money, the start-up venture gives her a venue to flex different job skills that she can market later.

Because the Fed has strict policies regarding outside income, she first ran the idea by her boss, as well as the Fed's ethics officer. Otherwise, Handlin advises would-be entrepreneurs to keep mum about side businesses.

What about making more at your current job or getting a higher-paying one? Despite recent downward revisions in U.S. job creation for this year, strong employees are demanding and winning salary hikes, said Doug Matthews, executive vice president for career transition services at Right Management Consultants, a Philadelphia-based subsidiary of Manpower Inc.

"Talent is still fairly scarce at the midlevels,'' he said.

3. Sell off inventory

Still haven't organized that big estate sale to clear out the basement? Consider breaking it down into smaller chunks.

Joseph Sinclair, author of "Building Your eBay Traffic the Right Way,'' said amateurs often try to sell too many items at once. Lose track of an auction, and your seller rating plummets, he said.

"Auction-management software isn't expensive, but it has a high learning curve that people might not want to deal with if they're only doing one sale,'' he said. Instead, sell items one at a time, using good photographs and plenty of description.

Of course, you're giving up usable items, so be sure you won't be rebuying new items with a similar function down the road.

4. Save more

This is the least fun strategy of the bunch. But it also requires very little extra work. Need more income to finance a wedding or other big-ticket item? Think about how much you'll generate by giving up a few other big-ticket items this year and next. The cost is obvious: a little less comfort in your lifestyle.

The payoff for all of them, however, is a little extra cushion in your wallet this year.

Reprinted with permission

Copyright © 2005, The Chicago Tribune