This is part 3 in the series – Retirement advice for young folks.
Young folks who are saying no to debt and minimizing lifestyle inflation have a great head start. However, they will have to earn more money to increase their retirement savings. It’s great to be frugal, but that won’t get you very far if you don’t have money left over to invest. The first step to financial prosperity is to be frugal, but the second step of earning more money is even more important.
Invest in your career
Young people in their 20s usually do not make as much money as older folks in the same career. However, their compensation has a lot more growth potential. A well paying career goes a long way toward an early retirement. If your job doesn’t have good growth opportunity, then early retirement will be much more difficult (assuming no pension.)
When you are young, you have plenty of energy and spunk. Working hard and over delivering is the ticket to promotions. If you are the first person to get in and last to leave the office, then your boss will notice the hard work. I worked 60+ hours per week many times when I first started out in my engineering career. Once I was more senior, I cut back on the hours quite a bit.
It’s essential to build a good working relationship with your boss and coworkers. In a perfect world, promotions and raises will be based on merit. In reality, the manager promotes the people they like. If two people deliver the same result and you like one better, who would you promote? I’m not saying you need to kiss up to your boss. Most of the time, it’s enough to be dependable and volunteer to take care of various problems whenever they come up.
Further education can be the ticket to higher salary. Most employers need their employees to grow with their careers. It is important to take classes and keep up to date in your field. Some employers will even pay for your advanced degree. When I was in college, I signed up for the 5 year BS/MS program. I was able to take advanced classes during my senior year and receive my MS with one additional year instead of two. The MS gave me an extra edge in finding a job and I also started at a higher grade. Mrs. RB40 went back to college to earn her advanced degree after a few years in the workforce, and it helped her career as well.
Changing employers can be a good way to grow your salary. It’s a pain to switch jobs, but these days it can be more lucrative than staying with one employer. I think switching jobs every few years is quite normal these days. However, you probably shouldn’t change jobs every year. One of my old coworker had 10 jobs over 10 years and that’s a red flag. This guy was a bit nutty and didn’t last in that position either.
Another way to grow your income is to work outside of your day job. I’m talking about building a side business and not working for an hourly wage. Delivering pizza is a good way to make extra money, but the earning potential is not that high. It’s a good way to help pay off debt, but the earnings won’t grow much. You have to think outside the box and invest your time in something that has more potential.
- Write a book – Anthony Bourdain wrote his first book, Kitchen Confidential, while he was a head chef. This book opened the way to his current celebrity career.
- Photography – I heard that wedding photography is a great side career.
- Blogging – Blogging is a terrible side job. Most blogs never earn a cent, but there are some successful blogs out there that are making a 5 figure monthly income (Smart Passive Income) so who knows…
These are just a few examples and I’m sure there are a ton of side businesses out there that are generating great extra income.
Buy Income Producing assets
Before spending a lot of money on luxury goods, you should consider buying Income Producing Assets instead. What are income producing assets?
- Dividend stocks
- CDs and Bonds
- Peer to Peer loans – higher risk, but much higher rewards than CDs right now.
- Rental real estate or REIT (real estate investment trust)
- Stocks, mutual fund, ETF and other financial products
- Internet assets (domains, web sites, etc…)
- Anything that can increase your income
The big mistake many young folks make when they start earning good income is to buy a new car. Even if they can afford it, this is not a good way to spend money. A new car will depreciate very quickly and most of that money will disappear in 5 years. I made that mistake when I got my first well paying job. The car was useful, but if I had purchased a used car instead, I would have been able to invest the extra money. It is important to start collecting income producing assets when you are young. Buying income producing assets will change the way you think about spending money.
Grow Your Income
You can’t get rich by being frugal alone. You also need to earn more money so you can save and invest. In my 20s, I focused on growing my income through my day job. I also invested in the stock market and real estate, but I didn’t focus on them until my 30s. Now that I’m retired from my corporate job, I’m focusing on growing my online income.
What about you? What are you doing to grow your income?