The Power of Relative Income

Getting your finances in order is one of the first, if not most important step to moving yourself up the totem pole of life. It affords you the ability to do the things you truly want through earnest discipline, developing an understanding of personal economics and where you are currently situated in life relative to your spending and saving habits.

Let’s meet John & Jane. Both work in accounting, both graduated from the same university with the same degree, both get paid the same hourly rate of $28 per hour.
The difference comes into play when we look at their total hours worked on the course of a given financial year.

John works an 85 hour work week for 50 weeks with only 2 weeks holiday time. Jane works a 50 hour work week with 2 weeks holiday time. Both of them are allowed to work overtime and get paid for it due to their company policies.
What this clearly means is John doesn’t have to do his 85 hours a week if he doesn’t want to and Jane could work more hours if she wanted too. They are both required to do a minimum of 45 hours a week as per their company policy.

Let’s do the math then: John works 85 hours a week, at a rate of $28 dollars per hour for 50 weeks a year. His total income for that year equates to $119,000 before tax.
Jane works 50 hours a week, at a rate of $28 dollars per hours for 50 weeks per year. Her total income for that year equates to $70,000 before tax.

Because John works more, he earns more and therefore has more to invest or spend on things he likes.

That is the basis of relative income, work more, earn more.

Understanding this general principle will allow you to see where you are on your personal financial trajectory in regards to your own goals and spending habits.

It’s also why I advocate working like an animal, eating shit for a good couple of years at your craft because the extra income that will be afforded toward you will allow for extra growth in further years if you play your cards correctly.

Think about what Jane could do with that extra $49,000 a year.
That’s enough to start multiple business ventures, jump into the property market, partner up with already established business owners, open up a share portfolio. All things that could improve Jane’s financial trajectory to the point of never having to work a day in her life again.

Before I end off this segment, I’d like to add that your time is worth tenfold more than $28 per hour. The former goal before focusing on hourly income is to develop a craft that will afford you at minimum $50 per hour of your time. Our time and mind are the only assets that we own in full, so make good use of them!

That’s true freedom and why I implore everyone reading this to formulate a weekly budget, start paying off debts, look at extra ways you can make income and learn how to make it work for you. All of this being based around what you personally need to consider yourself successful, that’s the only metric that truly matters in the end.

3 Actionable Steps to take away from this article
1. Budget – Weekly, Fortnightly, Monthly – Have a budget and stick to it!
2. Value – Increase your value and you’ll increase your paycheck
3. Invest – In yourself and the markets. If you’re not willing to take risks, you’re not willing to win!

Earnt, not given!

 

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