What You Can Learn From Individuals With 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
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
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:
- Increase your income so you can save and invest more
- 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
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
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.
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.
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.
- 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.
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.
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!
- 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?
Jerry is a Business Insider Contributing Writer who is obsessed with personal finance. He believes you can improve your financial situation by applying principles taught by the financial independence community to your financial life.
If you are having trouble saving, he recommends that you join the SaverLife Savings program where you can get a $60 reward after six months (no income requirement). All you have to do is put a minimum of $20 a month into a savings account. Easy, right?
For a fun read, check out his article 10 Signs You’re a Personal Finance Addict to see if you are a personal finance nerd.
Before you go, check out the new From Broke to Financially Woke Interview Series.
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