Tuesday, November 13, 2018

What My Recent Raises At Work Taught Me About Financial Independence

It's been an exciting couple months. It was towards the end of August that I received a promotion at work, with a raise of just over 4% shortly thereafter. Since starting my first "real job" in July 2017, I have received 3 raises watching my pay increase from $10/hr and no benefits to a base pay rate of $12.25/hr, and with benefits included compensation around $13.00/hr (3% dollar for dollar match on retirement, free vision, free dental, and free life insurance of 2x my annual salary). With that said, I have learned two valuable lessons besides what I have learned over the past year at my job.



Lesson #1: Controlling Expenses Is Great, But Don't Forget The Other Side of The Equation

There are two levers that you can use to speed up your time to achieve financial independence, being lowering expenses, increasing income, or a combination of the two. What I've realized over the past year is that controlling expenses is absolutely pivotal to achieving financial independence at an early age or simply retiring at all. Basic math tells us that if you live at or above your means, you will never be able to retire or pursue your passions. However, just as important is the other side of the equation. Adopting the abundance mindset and recognizing that the opportunities in life are nearly limitless is conducive to the pursuit of financial independence. I'm talking about increasing your income. You can do this by starting a side hustle (large or small) depending upon your skill set and how much work you're willing to do, increasing your skills (and consequently, your value) in the workplace, or preferably both. As I alluded to, controlling your expenses is great. Adopting the scarcity mindset is something I highly recommend. Shifting to a mindset in which you see your time and resources as limited will likely better help you manage both, which will obviously be of great benefit to you. However, as great as the scarcity mindset (lowering expenses) is, you can only lower your expenses so much. The reverse is true for increasing your income. Theoretically, your income potential is limited only by how hard you're willing to work. In reality, there probably is an actual limit to your earning potential, but adopting the abundance mindset that resources (like money) are plentiful and there are numerous ways to make money will energize you to finally start that side hustle or to increase your marketable skills for the workplace, allowing you to increase your income (and capital available to save or invest). In my instance, my total compensation has increased from $10/hr gross to $13/hr gross in the past year. This is an increase in annual income of $6,240/year before factoring in taxes! Assuming that the effective tax rate of this increase in income over the past year is 20%, that would leave me with an extra $5,000 to invest. With the max contribution for an IRA for those under 50 being $5,500 as of 2018, that is the difference between almost maxing an IRA or not contributing to one at all. This is just one year of raises from work. Imagine what the next 10 or so years will likely offer as I enter my prime earning years.

Lesson #2: Never Stop Learning

In my experience, the key to getting raises (aside from having a generous employer and showing up consistently with your best effort) is to continue to hone your craft. Over the past year, I've taken on numerous tasks at work in a few facets of the business. The benefit of this is that I've actually observed how much of what transpires at work ties into each other. You don't simply get 3 raises in a short period of time without continuously learning. Your employer doesn't spend their day thinking of how they can improve your paycheck; your employer is concerned with increasing the financial performance of their business. There are numerous ways that this can be accomplished, and it's to your benefit to be proactive in seeking out ways to improve the bottom line of your employer, whether that's cutting non-essential expenses or increasing productivity resulting in added revenue. Your boss will likely take notice if you are able to measurably improve the performance of the company. They will then likely be compelled to share a small portion of those improved results with you knowing that a motivated, diligent employee such as yourself won't stay around long if you don't at least reap some of the benefits of your insight.

Takeaways:  The first point is that while adopting a scarcity mindset and controlling expenses is great, you can only cut your expenses so much. If you are serious about reaching financial independence at an early age or in a short time span, don't discount the importance of investing in increasing your human capital (improving your marketable skills). This will eventually lead to an increase in your income, which when combined with your scarcity mindset will lead to great surpluses of cash being invested, and eventually financial independence. The real universal lesson that applies not only to financial independence but to life in general is to never stop learning. If you stop learning, you will stagnate. This will also lead to stagnant wages as you won't be providing as much value to your employer or your clients as you could if you did continue to learn.

Discussion: Are there any lessons that you have learned upon reflecting on a recent raise or promotion at work? Are there any "universal" lessons that could apply to both financial independence and work/life in general?












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