Life costs money. Unless you are living underneath a large and an incredibly dimly lit rock, you know this truth well. Troy and I advocate the lowering of your expenses as much as possible but even Jacob Lund Fisker from Early Retirement Extreme has some expenses. Thus, we all have to earn money but we think this can be achieved in a different way that can lead to an improved life.
Streams of income
Most people when they hear the term income they think of working at someone else’s company and receiving a paycheck. Depending on your place of employment, you may also receive benefits in the form of retirement fund matching, discounted medical insurance, or paid time off.
While w-2 income is a tried and true method of meeting ones financial needs, there are other income options. Owning a business that provides income is a lucrative venture as you are in charge and your earnings are not governed by corporate red tape. Additionally, for those who are unable to work or are retired, Social Security is a potential income stream that many use to help fund their life after working.
Many early retirees live off distributions from their stock portfolio and while passive, is an incredibly important part of a financially independent lifestyle. Jeremy from Go Curry Cracker has taken this concept a step further by providing guidance on how to live off portfolio dividends. Google tells us, a dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. The appeal of living off dividends is that one doesn’t have to draw down on the principal, allowing your money to grow that much more.
Lastly, although less than 13% of Americans have pensions, according to MyBudget360, one may receive a pension that can provide significant income replacement (depending on length of service, industry, etc.) after one has stopped working.
Our goal at The Compounding Interests is to help people not be stuck in a job they dislike because you have no other option. As such, our goal is to increase income and with numerous streams in order to lessen our dependence on a job that one may hate.
How do I increase my income?
The inevitable question we face next is, ok, so how do I increase my income? We have come to learn that there is not necessarily a one size fits all answer to that question.
My first job was working at my friend’s dad’s shop that made parts for boats. I was 13 and I quickly realized that making oil drain kits and constructing boxes in a dimly lit warehouse, was not a long-term fit for me. The job was however a good introduction to the world of work. I learned what I liked and didn’t like about this type of work and how my paycheck was surprisingly small thanks to taxes.
While I knew it was important to get an education before my foray into the working world, it reinforced to me that my strengths did not lie in the marine product realm. I realized that I needed to continue my education and explore other paths. Finishing high school, gaining time management, and other related skills have allowed me to make more money each year and to put that money toward additional money-generating assets.
In the book, Rich Dad Poor Dad, Robert Kiyosaki writes, “Rich people acquire assets. Poor and middle class people acquire liabilities, but they think they are assets.” As I have worked and received an income, my number one priority (after tithing) has been saving/investing.
Joel from FI180 calls his investment portfolio a “magic money making machine”. I like that. My investments and subsequent returns, are the primary method to increase my income. Investing allows my money to be in the market and earning for me every day. My goal is that one day, my portfolio or “magic money making machine,” will be my primary income generator. By investing as much as possible every month, you can similarly works towards financial independence.
A critique of the standard American path to income
Society suggests that we all adhere to the standard American path to wealth generation. This path is to perform well academically in high school and get into the best 4 year university that will accept you. Then, take out loans to cover what you/mom and dad can’t pay for. Take 4 or 5 years to graduate, switch majors if dissatisfied, and the “safety net” of student loans are more than happy to allow you to stay in college as long as you need.
After that you should go to work at an office job that starts you at a low, I mean a “starting salary.” Next, you will fight to get ahead at this job by staying late and working weekends to become a middle manager. With this promotion, you receive a modest pay increase which justifies the increase in responsibility. Hopefully, the stars will align and you will continue to work hard and get up to the senior level of management. At this level, there is constant pressure to increase profits and cut expenses. Not to mention, the necessity of navigating the ego mine field of your fellow management comrades. But these positions having incomes in excess of the magical $100,000 mark, make the recipients willing to deal with the negative aspects of the job.
We didn’t talk about the typical increase in expenses (and subsequent lack of saving) that frequently accompanies such a tale, but that shouldn’t be too hard to imagine. We all have fallen prey to the rat race at one time or another but what if there is another way? That is, a way that doesn’t cause you to go into financial ruin if you were to lose your job.
An Alternate Path to Income
The problem that many Americans face is that the majority of students graduating high school, at age 17 or 18, are encouraged to get the “college experience.” Going into massive debt is a necessary inconvenience for this rite of passage. Bull. Don’t get me wrong, I am all for education, but not in a way that literally mortgages your future.
Student Loan Hero reports that 2018 college students, who took out loans, “graduated with an average debt of $29,800, including both private and federal debt. Meanwhile, 14% of their parents took out an average of $35,600 in federal Parent PLUS loans.”
What if high school students gave more credence to community colleges, working while in school, or commuting to the nearest four year university? Not all of these options are possible for everyone, but thinking a little bit smarter than everyone else, is an option.
Lowering your school costs and adopting an optimized approach to your overall expenses, is the key. It may sound overly simplistic, but decreasing your expenses is an increase to your income. If you put your car payment(s) and student loan payment(s) towards investments that return around 7-10% a year, the result is staggering. Those investments compound each year after too, further giving a compounded boost to your income.
If you are stuck with school or car debt and want to put the work of compounding interest on your side of the ledger (not on Navient’s, SoFi’s or Nissan’s side), work towards paying off that debt and wrestling back control of your finances.
Improve Your Life
Our goal is financial independence, not dependence on a job that could disappear at any moment. If you can’t correlate with that sentiment, I don’t know what to tell you. We at TCI feel that generating multiple streams of income and moving closer towards that money making machine is going to empower us to enjoy life and do some good along the way.
Your situation is unique to you. But consider a different path, find your own route to passive income, and above all, take action. Many of the improvements in my life have been due to me taking action. A key example of action was asking my wife to marry me and reaching out to a guy named Troy about starting a website. The marriage thing had a bigger impact, but you get the idea. Start a business, increase your 401k contribution, make a plan for your money. Money is not the key to everything but neither should we treat it like an enemy. Make it work for you.
Generosity in action
Did you see the story about the man who paid off all the 2019 Morehouse college graduates student loans? This pronouncement was an extremely generous gesture that hopefully inspires many to do the same.
My first reaction was confusion as to how that would work. Would he pay off each person’s loan(s) individually? I imagine that would take forever to work with each graduate. Would he cut each graduate a blank check? Would he insist they show proof of their loan amounts or use the honor system? What about the students with no debt, would they get anything?
I graduated college with no student loan debt so I immediately felt for the students who had no debt to speak of. The students that worked while in school/all summer or commuted, or made some other sacrifice, essentially got nothing?! How is that fair?!
Luckily, when speaking with Troy, he reminded me of the story in the Bible about the man who paid each laborer the same amount at the end of the day, regardless of how long they worked. Was this fair to those who started at 8:00 and worked till 6:00? In an hourly sense, no, but it’s also not fair that I was born in the USA and have been shown abundant grace despite my constant screw-ups. I’m even blessed to have a friend like Troy who can set me straight when I miss the forest through trees.
I now see that this gift to the graduates of Morehouse is a selfless act and on-par with the biblical parable of the laborers. I also hope to make similar acts of kindness to people, today, tomorrow and 30 years from now. Having an income to achieve this hope and support my family are what I am working towards. What are you working for and how will you work to increase your income/improve your life? Tell us below!
