Give yourself a 111% raise

You’ve probably heard of the ‘latte effect’ – the long-term impact on your finances of small expenditures like a daily cup of coffee that doesn’t come from your own kitchen.

I like to use similar mathematics to figure out just how big a raise I can give myself – same job, same boss, no negotiating.

So how does it work?

If I earn $10 after tax in one hour and I have to spend everything I earn in the same month or the same year (definitely NOT a Voluntary Worker yet), that $10 will buy me exactly $10 worth of whatever it is I need to consume – let’s say ten $1 chocolate bars.

If I am already a Voluntary Worker I can give myself a 111% raise.

Because I don’t need to consume that $10 straight away, I can tuck it away somewhere it should outstrip inflation e.g. a high interest bank account. It then sits there growing until I chose to use it. If I leave it for 25 years and it grows at 3% after accounting for tax and inflation, then when I come to use it the fruit of my hour’s labour has swelled to $21.15. That’s 21 chocolate bars, an increase of more than 111 percent!

25 years is a long time, but it’s well within my expected lifespan. I fully expect to set aside many of the dollars I’m earning now for at least that long, so it’s not foolish to be thinking about my earnings in this way. It’s an encouraging thought when work drags!

Another motivating thought is the income stream that can flow from earned dollars that don’t have to be spent. If my money is growing at 3% after tax and inflation, then every ten thousand dollars I earn and don’t have to spend is equivalent to a $300 per year income stream for life.

Although this maths is fun, it does encourage the assumption that savings in the bank or in the stockmarket are free from risk (wrong in both cases) and that inflation always trundles along at 1 or 2 or 3 percent (also wrong). This article is about the benefits of deferred spending, not a treatise on risk and inflation, but do consider yourself nudged to think about these matters!

Feel like an intravenous shot of motivation to work? Have a think about what happens if you put your $10 towards a small business returning 25% per year (good but very possible). That $10 will put another $2.50, before tax, into your pocket every year, and that’s just the cash flow! The underlying business is likely to grow in value, squeezing even more out of your $10. Let’s say you put $100,000 into a business, take out $25,000 per year as profit and sell the business after 10 years for $150,000. Every $10 you put in at the start has returned you $25 before tax and inflation, as well as bringing you $15 when you sell. Obviously there is work and risk involved, but a side business like this is the fastest way I know to become a Voluntary Worker.


Add a comment

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: