What You Can Learn From Individuals With Higher Incomes

Higher Incomes

You may not be able to relate to those who have higher incomes than yourself on the path to FI but there is a lot you can learn from them!

-Peerless Money Mentor

 

Intro

I have read a lot of articles lately attacking those with high incomes who are on the path to FI or have already reached the finish line.  Even after acknowledging the fact that having a higher income makes their path easier, millions collectively yawn.

My advice is this: let’s stop yawning and start learning!

Wealth Building Strategy

High Income Earners

Just because someone has a high income doesn’t mean that they are wealthy.  If they spend more than they earn, that is a recipe for becoming a member of Broke Phi Broke.  This article will focus on high-income earning individuals who are on the path to financial independence/have already achieved it.

Before we get into our discussion, let’s discuss a couple wealth building strategies.  To create wealth, you must do one of two things:

  1. Increase your income so you can save and invest more
  2. Find a way to minimize your expenses to save and invest more

I highly recommend focusing on both areas.  It will put you on the fast-track towards building wealth.  When I first began my journey, I focused primarily on step 2 and ignored step 1 completely.

I thought to myself, “Since I am in debt, I do not deserve to take a vacation.”  To ignore step 1, is to ignore the fact that you need to have fun in life!

High Income Required

High Income Earners

Maxing out your 401 (k), HSA, and Roth requires a total of $27,400.  You need a high income to do that.  This fact alone may make it seem like you cannot relate to individuals who are doing this. While that is understandable, I would argue that you can still learn a lot from them!

My projected income for this year is $48,000.  I am on the lower end of the income scale in the personal finance space.  But I refuse to let that stop me from learning from those who make more!

Plus, I am confident that my income will rise over time.  Currently, I am focused on adding skills to my talent stack!  Let’s take a look at some concepts I learned/re-learned last week.

Journey Through the Blogosphere

High Income Earners

While traveling through the personal finance blogosphere on my digital hover board two weeks ago, I landed upon Doc G’s blog DiverseFi.  He publishes thought-provoking posts on a daily basis!

While he makes a helluva lot more than me, I learn a lot from reading his blog.

A couple weeks ago I learned about the 1% rule from reading his post titled Why Not Condos?  While I had heard Paula discuss this on her podcast Afford Anything, I never did research on it.

After reading the sentence below on Doc’s blog, I decided to change that!

The One Percent Rule

“The properties cash flow fairly nicely.  Although our cap rate hovers around 5% (not great) and we  can’t meet the 1% rule on all our properties, we still manage to net well into the five figures every year.”

To learn what the 1% rule was all about I hovered over to one of my favorite websites, Investopedia.  There I learned that the rule is used by real estate investors to determine whether the monthly rent will cover the mortgage payment.

To calculate the one percent rule, simply multiply the cost of the mortgage loan by 1%.

For example, let’s say I was looking to take out a mortgage loan for a condo for $100k.  Using the 1% rule, I would want to charge tenants $1,000+ in rent.  To make a profit renting the condo out, I would want the mortgage payment to be less than $1,000.

Important to note: This rule of thumb does not take into account other housing expenses such as maintenance, taxes, etc.

Takeaway

Knowing this, what can we take away from Doc G’s acknowledgement that  cannot meet the 1% rule on all of his rental properties?

My takeaway is this:  While he cannot meet the 1% on all of his properties, some of them meet or exceed the 1% rule.  This underscores the importance of diversifying your portfolio to minimize your losses!  Doc has diversified his real estate portfolio by owning four condos.

Now that we have explored Doc G’s universe, let us hover over to a few more blogs.  I’ll briefly mention what I have learned from each one.  An in depth exploration of all the things I have learned would turn this into a 10,000 word post.

Honorable Mentions

  • Yesterday I learned from Jason @ Winning Personal Finance not to confuse a higher tax bracket during my future working years with the tax rate I will pay on my withdrawals in retirement.  Read his post Roth vs. Traditional 401(k) to understand why this is important.
  • I always enjoy reading interviews from ESI’s millionaire interview series.  It is interesting to learn what strategies millionaires have used to build substantial wealth.

Conclusion

We can all learn something from high-income earners.  In the personal finance space, many high-income earners write about how they grew their income over time.  They also write about their failures.  Learn from them.  On the other side of the spectrum, we can learn from low-income earners, too!

As you should know already, knowledge exists independent of wealth.  In my next post, I will write about FI from a bottom to top perspective.

Personal Update

After my Business Insider Your Money story came out, some criticized me for having a projected annual income of only $48,000.  I found it funny because that is something I am actively working on.  Here is what someone on twitter wrote in my defense:

Joe is spoke truth to power, folks!  I could not have prepared a better response to that criticism.  Thanks for having my back!

Community Feedback

  • If you are a high-income earner, what strategy did you use to boost your income throughout the years?
  • What financial concept have you learned this week?
  • What is a recent money win for you?
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12 thoughts on “What You Can Learn From Individuals With Higher Incomes

  1. When I clicked over to this post, I had no idea that you had mentioned my article. Thanks so much for the backlink and I’m thrilled that you learned something from it.

    One of the reasons that I started my blog was to share some of the financial concepts I’ve learned along the way that are misunderstood or mostly unknown by those less nerdy than I. That post was a pain to write but knowing I’ve helped at least one person, makes it well worth it.

    Love this post format and also really enjoyed the Twitter quote.
    Jason@WinningPersonalFinance recently posted…Roth vs. Traditional 401(k) – The Comprehensive Guide to Making the Right ChoiceMy Profile

    1. You’re welcome, Jason! Thanks for stopping by and sharing the post on twitter. Keep up the excellent work! I am glad you included that information in the post.

  2. Hey man, thanks for featuring me. While I think rules are great, sometimes perfect is the enemy of good. Within all income levels, there are smart moves to be made!

  3. I don’t think it is the total amount saved and invested as much as it is what percentage of your income. I did some analysis to show how long it would take anyone to retire based on the percentage of income saved – regardless of the total income amount. Pretty interesting results: https://maximizeyourmoney.com/retirement/early-retirement-charted-chart-just-might-blow-mind/
    Brad – Financial Life Planning recently posted…How 8 Key Investing Indexes Performed In The Past 10 YearsMy Profile

  4. It is refreshing to read a post where instead of chastising those that make more than you, you are appreciative that they too might have something to share. The 1% people have gotten bad rap in recent years, but honestly if you had a choice to become a 1 percenter, would you not take it?

    I especially like your comment about learning from their mistakes. I made a ton of them (wrote it in a 5 part series on my blog that I totaled the net worth hit to me and it was 7 figures). I hope that they can provide examples of what not to do, any any income level.

    Thanks for a the positive post on the wealthy for a change.

  5. Great you are starting from a projected income of 48 000 USD and are committed to make super savings and investments to reach FI! That tweet was absolutely brilliant and describes exactly where you are right now and where I am as well : accumulation, learning phase and on our journey to develop the right habits to reach FI 🙂
    Good luck to you and congrats on this blog I am also checking the 10 signs that I probably am a personal finance addict as well 🙂

    1. I really appreciate you stopping by, Jonathan! It’s great to meet another like-minded blogger who is in a similar position! I wish you good luck on your journey as well.

  6. I think it’s great that you’re willing to learn from high-income people instead of judging them like so many people do. Something I heard a while ago that has stuck with me was, “bless that which you want.” If you don’t make a lot of money instead of talking bad about people who do, congratulate them and know that that will one day be you if that’s what you want! Thanks for sharing!

    1. Thanks for stopping by, Scott! That’s a very good quote! I believe we can learn something from everyone, regardless of their income level. Instead of judging those with higher incomes, we should congratulate them like you said!

  7. I’m sure I and your readers all clicked on this post to read something much simpler than what you have here Jerry, these are such real-life finance tips. Learn most about failures! Love that!

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