When you’re striving to achieve financial goals, or just to get on top of your bills, taking a second job can seem like a lifeline. But while the extra cash might seem tempting – especially during a cost-of-living crisis – there’s a lot more at stake than just the money. Beyond the immediate financial gains, there are factors to consider, such as taxes and lifestyle trade-offs.
Understanding tax implications
Many people worry any additional income from a second job might simply be swallowed up in taxes. However, this is not the case. The New Zealand tax system operates on a progressive scale where individuals are taxed at different rates based on their income levels. The levels are:
Up to $14,000 – 10.5%
Over $14,000 and up to $48,000 – 17.5%
Over $48,000 and up to $70,000 – 30%
Over $70,000 and up to $180,000 – 33%
Over $180,000 – 39%
Navigating Tax Brackets
One of the key considerations is the potential impact of tax brackets. While additional income can lift overall earnings, it may also push you into higher tax brackets, thereby increasing the percentage of income subject to taxation. This is best explained by considering the following scenarios:
Scenario 1: You earn $45,000 annually before tax from your main job. Taking on a second job, you earn an additional $5000 per year. With this setup, you will pay 10.5% tax on your income up to $14,000, 17.5% on income between $14,001 and $48,000, and 30% on income over $48,000, which amounts to $2000. Thus, you pay an additional 12.50% in tax on the $2000, as crossing the $48,000 threshold places you into the next tax bracket.
Scenario 2: Suppose your main income amounts to $50,000 a year, and you earn an extra $10,000 from a second job. In this case, your additional income falls within the same tax bracket, so the tax rate remains unchanged.
It’s important to note this progression of the tax brackets as often people think that when they move into a higher tax bracket, all the income is taxed at that higher rate. But it’s just the amount that goes into the higher bracket. When you look at it this way, you pay a little more tax if you go up to another tax bracket, but it doesn’t swallow all your extra income – far from it.
Striking a balance: beyond tax considerations
Beyond tax implications, evaluate the broader impact of taking on a second job – on your lifestyle, wellbeing and long-term career prospects. Consider:
Work-life balance: Juggling multiple jobs can strain personal and family life, leading to greater stress and reduced leisure time. Mental health is currently the number one concern for employees. However, a lot of stress comes from struggling financially, and while having a second job takes time and may make you more tired, the relief from the extra income may be more important.
Career development: Will the additional job contribute to skill development, professional growth and career advancement, or will it detract from opportunities in your primary field?
Opportunity cost: Every hour spent at a second job is an hour not invested in personal development, sport and leisure activities, pursuing hobbies, spending time with friends and family.
Financial goals: Extra income can help short-term financial objectives, like paying off debt, saving for a major purchase, helping with high mortgage payments or building an emergency fund. How do the extra work and income align with your longer-term financial goals?
Health and wellbeing: Overextending yourself with multiple jobs can lead to burnout, fatigue and diminished mental wellbeing. Often one’s diet and exercise regime falls by the wayside. Prioritising your self-care, maintaining a healthy work-life balance, and allocating time for relaxation and rejuvenation are integral to sustaining long-term productivity and happiness.
While additional income can provide temporary relief, financial security and help towards achieving your financial goals, it’s essential to consider all the variables. Weigh up the trade-offs and assess whether the benefits outweigh the costs in the broader context of your life and goals. Only then can you make an informed decision on whether a second job is worth it.
Lisa Dudson is an investor, entrepreneur, and author of eight bestselling personal finance and property investment books.
