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How To Allocate A Second Income?

September 28, 2010 · 52 comments

in Personal Finance, Work

So, it looks like I MAY be headed back to work.  My former employer contacted me about returning to my old group to help out with a project.  It will part-time, and I will be working from home.  Sweet!

Assuming everything works out and I start making money again, it poses interesting questions to me.  My number one concern is protecting my income.  I am contemplating just investing all the income into a 401k plan to protect it from taxes.  If I do that, I won’t have to worry about possibly getting hit with owing a lot of taxes in April.  Of course, I know the government wants me to run around and spend all of my income.  Unfortunately for the government, the opposite will probably happen.  Fear of taxation may force me to hoard all my earnings instead.

I will then have to figure out how to invest in my 401k.  Stocks?  Bonds?  Mixture of both?  International?  Domestic?  What I need to do is look at our current retirement funds and see what areas are under-represented.  (Meaning, do I have enough in bond funds?  Have I put some money in small, mid and large cap funds?  etc.)  I know I should know that already, but I have not rebalanced in awhile.  Probably because the stock market was depressing me…

Next, I need to keep in mind that this will be ‘extra money’.  Meaning, I will not even consider it as income since I will be a contractor and I will only be hired in 6 month increments.  (My last contracting stint with this group lasted 3.5 years.)  I do not want to be one of those people that makes financial commitments based on 2 salaries and then are is desperate straights when they are reduced to 1.  Each paycheck will be considered a gift!

Assuming it all works out and I am re-employed, I still fully intend on working on my blog.  Please be patient if I am late to replying to comments and what-not though!

So, what would you do if you suddenly earned a second income?  In your answer, assume it could be a short term (less than a year) assignment.

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