Unless you’ve already got a massive amount of cash that allows you to lead the life you want without having to work for money, you’re gonna have to master the there three pillars to financial independence. There is no shortcut to it – you must work on each one of them over time. This is what I mean:
- Increase your income.
- Save a large amount of that money.
- Make the money grow and work for you.
Today I want to talk about increasing your income and the amazing speeding effect it can have on your freedom.
If you’re like the majority of people who read this blog, you are currently in full-time employment. You are working around 8 hours a day, 40 hours per week, 49 weeks of the year, every year. You may work more or less than 40 hours per week – and that’ll hopefully be reflected in your income – but you are exchanging time for money.
Your employer is paying you an agreed amount of money for every hour that you work for them. If you work you get paid. If you don’t work, or you’re ill for a prolonged period of time, you may not be paid… this is known as Active Income.
Paid by The Hour
After everything is said and done, your employer pays you what it owes you. You then pay the tax-man what you owe him, and finally you are left with a certain amount.
Let’s use an example, because I love to use examples.
Toby works as an Admin Assistant in a large corporation that manufactures toothbrushes (why not?). He’s a very lucky chap and earns $40,000 per year by shuffling some Excel spreadsheets around and arranging meetings.
Toby must pay 25% in taxes (including social security and any other payments that are obligatory), so his net take-home pay each month is $2,500. He works in that office 40 hours per week and is lucky that he’s not expected to do any unpaid overtime. This brings his hourly pay to $15.6.
In other words, $15.6 is how much Toby and his company value his time at. After all, they have agreed to this and signed a contract.
Unfortunately for Toby, his high city-centre rent, bills, phone, transport, and hobbies take around $2,400 from his account every month. Bummer! It doesn’t look like Toby will be able to reach financial independence by saving $100 every month…
Toby has two options at this stage:
- Lower his expenses
- Increase his income
This is an easy choice for Toby. He doesn’t want to lower his expenses one bit because he thinks his quality of life would decrease too much. He, therefore, decides that he’s going to try and increase his income.
Of course, the most obvious way would be to speak with his boss and get a promotion. Maybe he could be in charge of the Admin department in his office as he’s worked there for years and everyone knows and likes him!
Alas, Toby isn’t so lucky this time, and his boss refuses to give him the promotion, citing that he cannot promote him without a degree. He’s been looking for other jobs doing something similar, but they all ask for a degree.
It looks like Toby is out of options and will be stuck at that salary forever. If only there was another way…
Starting an Online Business
We are so incredibly lucky to live at a time when technology has advanced to the point that anyone can have access to any information. Anyone with an internet connection can create content and express their views, and they can instantly reach thousands of people.
This is why starting an online business, doing something that you love is not only possible but also very viable.
I will dedicate a big part of this website to sharing how to start an online business that will increase your income, and I’ll share my own experiences. If you’d like to start your own website / blog, I’ve put together a guide that will teach you exactly how to get started – in less than 30 minutes!
I hope that this will help you to see that anyone can do it with enough time and determination. And if I fail catastrophically, I will also share it! I may then start preaching about how online businesses don’t work! Ha!
Back to our friend Toby, he starts a website in which he talks about his passion: salmon fishing. He has been working at it after work for a few months and has gathered a loyal audience. He makes money by testing fishing products and then recommending the best ones in exchange for an affiliate commission from the manufacturers each time a sale is made through his website.
He has also created an online course about advanced salmon fishing techniques that he sells to his readers, which includes videos, diagrams and is just damn useful to his customers.
With very little previous knowledge, Toby has managed to create a business which now reliably produces around $400 net each month. The more he writes and connects with others in the community, the more readers he attracts to his website, and the more money he makes.
Toby now makes $2,900 each month and spends the same amount of money he did before. In a few months of hard work, he can now save $500 every month. In a year’s time, he’ll have $4,800, something he would have never thought he would accomplish. This kind of money will later allow him to have a nice backup in case he chooses to leave his job to work full time on his business.
What About You?
I believe that you should always strive to earn more money from your time, as it’s limited. You only get a few decades in this world, and a handful of those are spent mostly working.
If you have a full-time job, working hard to gain a promotion can be a great way to increase your income. Ramit Sethi has written an amazing guide on negotiating a promotion, which you should definitely check out.
The key here is not to let your expenses creep up too much after earning more money, as that would defeat the purpose of earning more money. The more money you earn while you maintain your expenses will increase your savings rate, and that is what’s gonna take you to financial independence.
If you want a handy spreadsheet that can work out all the math for you, and show you how a small pay increase can accelerate your freedom, make sure you sign up below to receive the FREE Financial Independence Calculator!