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 pay for our entire living expenses, but also generate excess returns and continues to grow on it’s own. We can then leave the rat race forever and become truly free. This is what it means to become financially independent. 😀
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 and expenses. The graph below represents what my net income to living expenses look like for a typical month in a given year. Most of the increase to my expenses since 2009 comes from inflation and higher interest payments on my debt. (The graph below is updated once a year)
- 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.
- 2020 – Sold farmland to buy residential property. Annual rent doubled due to high cap rate in Vancouver real estate. Deployed over $100,000 of cash savings from selling the farmland into the stock market during the 2020 pull back. This increased my dividend income by $7,000 a year. Spending less time on freelance work. Combined after tax income now equals 3 times living expenses, woot!
People often think you need to be really smart, talented, or work really hard to have a chance of making a six figure income. But the longer you work in your respective field, the harder it becomes to significantly grow your salary. Here’s something I learned though: you don’t HAVE to make money from just your one source of income.
My full time salary is not increasing at the same rate it used to, but through investing and starting multiple revenue streams, about half of my income now comes from other sources other than a regular 9 to 5 job (as shown in the income/expense 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 not about being a workaholic and compromising a balanced lifestyle either. I currently work about 40 hours a week at my full time job, and 5 hours a week at my part time job. I’m not a workaholic, but it certainly helps to work a little harder than the average person to get ahead. It’s a small sacrifice I’m willing to make for the giant reward of early financial freedom. 😀 All other sources of income I currently make like from rent and dividends are passive. 🙂
[last updated this page on August 2020]
Good luck! Seems like you have a good trajectory.
Diversifying income is great, and taking on “good debt” also should accelerate your path.
Great site! You have me interested in looking into using leverage to increase my returns. I am starting out with investing and have focused on high yield dividend stocks and notes through Lending Club. There is a lot to learn but it doesn’t take an advanced degree to understand any of it. Just discipline and a little intelligence.
I can attest to your point on the difficulty of growing a salary after being in my field of work for a while. If I want to grow my earned income in my career I will have to take on significantly more responsibility which means working longer and harder. I have nothing against working hard, but I would rather work smart and if I can have my money work for me with little effort it seems like a no brainer. I hope to one day replace my earned income with passive income through investing and keeping my expenses low.
OK. So I realize this may be a tall order!
I have really taken a liking to your method; of continued search of investments, diversifying your incomes, collecting dividends, and watching your monies grow in a controlled and leveraged manner. I mean it! I’m 21 and my eyes glaze over when I see your graphical representation of your Income/Expenses graph lol
But seriously, I have a similar graph I update periodically however I’m not sure I have a clear understanding of yours.
You site “take home pay”, (full time/part time jobs I’m assuming), but are your rents, interest, and dividends net as well or gross?
On my chart:
-I input all income as GROSS,
and include 3 categories for expenses: Taxes, Personal Expenses, and Investment Expenses.
Taxes: I consider taxes a very real expense and see it as a cost to continue our livelihoods in our respective great countries.
Personal Expenses: As you have already acknowledged, lifestyle inflation happens but i believe it important to gauge just how efficiently we’re living relative to our means. This category includes any personal home expenses such as a mortgage payment since this asset is not income producing (however a great investment it may be).
Investment Expenses: Your secondary passive incomes are growing through leverage, and I think adding this category can provide an effective visual for gagging how efficiently we’re arbitraging between annual investments expenses and the income we get to keep.
Granted, this chart with explicit expense categories and a change to gross income (with the inclusion of tax expense) would not be nearly as neat as it currently looks.
However, seeing how your tax liability, your personal expeditures, and your arbitrage efficiency look like as a visual representation is worth it. I think! lol
Thank you for feedback!
Pingback: Blogging Income | Freedom 35 Blog
Looks like you had a steller 2015! Would you mind updating this page!? lol
2018 Please!! 🙂