CFO of Life #89: Beyond Time: Factors that Shape Your Salary

Making money is important, it is so important that most people would put it in their top 5 life priorities!

While most of us might not aim to make the biggest possible amount of money in life, I would argue that the majority of people would love to have more. Plenty of people do that by getting a sales job, pushing hard and becoming entrepreneurs, high-flying executives, doctors, lawyers or podcasters/ bloggers. While there is a myriad of ways to increase your income, many people ignore growing their income and focus on saving.

That’s why this week’s article will focus on showing you: 1) The Salary Equation

2) How important it is to continuously increase your salary?

3) The impact of a simple $10k salary bump on your savings and retirement 4) The moral of the story Now that we have a lay of the land on what you will get out of this article, let's jump into:

Part 1: The Salary Equation: Time x Education x Location X Responsibilities

When it comes to your salary, 4 major factors distinguish how much you make: Time is important as the more years of experience you have, the higher position you can get and so the more money you can make.

Education such as a college degree or any specialized certification would significantly increase how much money you can make. That is true as they will equip you with better and more specialised skills which will allow you to demand higher valuation from the job market.

Location: The city/country where you work can significantly influence your salary due to varying costs of living and robust economic conditions. Another important factor is industry concentration, if there are more companies in one place they would be forced to compete for talent and that would additionally increase the salaries paid in that location.

Responsibilities: The complexity and scope of your job duties play a vital role in determining your salary, as the more responsibilities you have, the more you will earn. Additionally, taking on leadership and management commitments within your organisation would considerably increase your salary.

And it is that easy! If you increase any of those factors, you will increase the value you provide to your employer. And that value would be rewarded with a higher salary or maybe a bonus.?

This is important as salary is the primary (single) source of income for most people and that would directly influence your quality of life and your ability to save, invest and reach your financial goals. While your salary is crucial, exploring additional income streams like side hustles can further increase your "value" and accelerate your earnings.

Part 2: The Importance of Continuous Salary Growth As we established, your salary is like the revenue of your business, it powers all the decisions. But as revenue, you always have to fight to grow it and you can never expect it to be enough.?

Why is it important to constantly grow your salary?

One word - INFLATION and let me show you an example of this: Imagine it is your first day after you graduate and you are getting paid your first salary of $50k and you live in a society where inflation is 2%, but your salary never changes. So whatever you started with, is what you would have when you retire. In 30 years, your $50k would be equal to $27,830.83, or you would have lost 44.34% of your purchasing power. Now you can see the power of inflation and how it erodes your earnings. And that should be enough evidence of why you always need to strive to get the highest income possible.

Part 3: The Impact of a $10k Salary Bump

As we established, inflation is the enemy, it kills your earnings but a simple $10,000 raise can make a huge difference. It might not feel like a lot, but let me show you a few examples of how it will impact your life.

Impact on overall earnings: Imagine, in 10 years that small $10k bump will be $100k, in 20 years that would be $200k, or $450k as lifetime earnings when you retire. That amount alone is more than what most people will earn in their lifetime!

Increase savings:

Assuming you save 20% of that small pay bump, you will save an additional $2,000 every month. Over the years, this small monthly increase in your savings will accumulate into a substantial figure. And you will probably not believe me but this alone could drive $90k more savings.

Influence on your investment results:

A higher income translates to more capital to invest, so any additional $1 you add matters! If you invest the additional $2,000 you save every year, in 45 years you will have $571k, $481k of which would be your investment returns (estimated 7% return) and $90k would be your pure savings. I know the numbers are huge, but that’s why compounding is a miracle!

Or if you take the full $10k and invest it every year for 45 years you should get close to $2,857,493 investment return from your additional salary. Remember, it's not just about the quick buck, it's about the long-term benefits that compound over time and make dreams come true.

Part 4: The Moral of The Story

The moral of the story is that regardless of how good you are at saving, you can only save 100% of what you make. Intuitively, 100% of $50k is still less than 10% of $1m, so increasing your income makes it a lot easier to save more. But the most important thing is to know how much you want to spend and how much you need to make to cover that.

Remember, your salary is a dynamic factor, not a fixed number, you should constantly seek ways to improve it so you can have a more secure and fulfilling life! So, as long as you have more than what you need, you are doing better than the majority of people on this planet!

Thank you for reading! All comments and topic suggestions are highly appreciated. Post #89 in the series CFO of Life#si #personalfinance #CFOofLife