Incomes / Expenses Progress
The cost of living inevitably increases over time due to inflation. So in order to get ahead we must make our incomes grow faster than our expenses. Then take the difference between the two, (Savings) to invest and produce real returns which will boost our future passive incomes. This self propelling phenomenon becomes exponentially more rewarding over time until eventually, the streams of passive income will carry enough momentum to not only provide us with the cost of living but also generate excess returns and become self sustaining on it’s own. We can then leave the rat race forever and become truly free. This is the ultimate goal.
My income is mostly fixed and predictable and I try to do the same with my monthly spending, so at the end of every year I compare my earnings to my expenses. The graph below represents what my net income to expenses look like for a typical month in a given year. As long as I can increase my income faster than my expenses I should be in good shape. Most of the increase to my expenses since 2009 comes from inflation and higher interest payments on my debt.
- 2008 – Just graduated from college and found an entry level, design related job with a $35,000 gross salary. Also picked up a part-time job on the side. Living with parents rent free. That’s why my expenses were so low this year.
- 2009 – Life is good. Bought and moved into my own apartment. Spent all my savings on the $13,000 down payment though. Started to invest in the stock market.
- 2010 – Dividend income starting to show signs of growth. Bought a used car so expenses increased. Paid off all student loans.
- 2011 – Borrowed money from the bank to invest in the financial markets boosting dividends. However expenses increased as well to service the extra debt.
- 2012 – Promotion at my part time job. :0) Continuing to invest. Near the end of the year I bought a farm which is going to be rented out for income.
- 2013 – Purchased another farm this year so now I have two. The rental income from the farms, about $5,000 a year each, is nice. But at the same time my expense have also increased due to my new farm loans.
- 2014 – Making about $1,000 interest income per year from some mortgage funds.
- 2015 – Putting a higher priority on interest producing investments to make full use of my tax-advantaged accounts like the RRSP and TFSA.
- 2016 – Added more to fixed income investments
- 2017 – Started investing in peer to peer lending and increased my interest income.
- 2018 – Got laid off from my job. Received a rather generous severance package. Started working at a new company soon after.
- 2019 – Focusing more on freelance graphic design work.
People often think they need to be really smart, talented, or work really hard to have a chance of making six figure income. Furthermore, as many people with careers will probably understand, the longer you work in your respective field, the harder it becomes to significantly grow your salary. But here’s a secret I learned. You don’t HAVE to make money from just your one source. My full time salary is not increasing at the same rate it used to, but through investing and starting multiple revenue streams, about 1/3rd of my income now comes from other sources other than that regular 9 to 5 job (as shown in the income/expense bar-graph above.) And these extra incomes are growing faster than my full time job. It’s important to think outside the box and put our time and money to work in the right places. 😉 It’s all about earning more than you spend and investing the excess. The more income streams I build the faster I will achieve financial independence.
It’s not about being a workaholic and compromising a balanced lifestyle either. I currently work about 40 hours a week at my full time job, 5 hours a week at my part time job, and 5 hours a week freelancing. It certainly helps to work a little harder than the average Canadian worker if I want to get ahead, but that’s a sacrifice I’m willing to make for early financial freedom. 😀 All other sources of income I currently make like from rent and dividends are passive, and hassle free. 🙂