On this episode of Investing for Freedom, Mike discusses the three main reasons why getting a raise will not solve your money problems. Mike gives tips and insight into how to get a higher income and keep your expenses to a level that allows you to live a prosperous life.
“The three reasons why getting a wage increase does not fix your money problems: Our expenses always rise to our income level. You still have to trade your time for money. And inflation will always outpace the wage increase guaranteed 9 times out of 10.”
0:00 – Intro
0:42 – Our expenses always rise to the level of our income
1:45 – Even with a greater income, you still have to trade your time for money
2:04 – Wage increases will never keep up with inflation and the cost of goods.
2:22 – Mike mentions that inflation is a silent tax, that is keeping the average American poor
3:09 – Mike argues that you need a 5% to 10% wage increase every single year to just break even
4:20 – Mike suggests that you need to shift your mindset to assets, as opposed to decreasing your expenses
4:27 – An asset is something that puts money in your pocket, a liability is something that takes money out of your pocket
5:07 – Mike explains the key to long term success is not making more income form your job, it’s having more assets that put money in your pocket
8:24 – The key to prosperity is to make sure you put your money into cash-producing assets
8:26 – This is the fast way to get to higher income, whilst keeping your expenses at a level where can live a happy, prosperous life and get everything you want
So today we’re going to talk about the three reasons why getting a raise will not fix your money problems. So, here’s the thing. Our expenses always rise to the level of our income. It’s just natural. And for most people, that’s just how it happens. Think about this. When was the last time that you got a dollar per hour raise and then worked 40 hours per week and ended up saving that $40. And by the way, this works in other areas too. We talk about this constantly, but I’m a firm believer in giving. So whether you want to give 1% of your income, 10% of your income, we talked about this in the last video, and you might want to go check that out, but I believe that a percentage of what you give will come back to you and it doesn’t have to be 10%.
But think about this. When you get a raise, you don’t automatically just save that and start giving more money. Here’s the other side of that. If you decide to start putting money away to give to a charity or donate or help people, you’re not going to miss that money either. So, it works both ways, but here’s the reason why I say that getting a raise does not fix your money problems. Our expenses rise to the level of our income. Would you agree? Let’s talk further about this.
The next problem. The second part of this is you still have to trade your time for money when you might say to me, well, yeah, Mike, but I’m trading 40 hours a week and I got a dollar an hour pay raise. So then that means I’m making more money, but here’s the thing, as I said, in point, number one, your expenses are increasing, and you only have so much time to trade for money. And so, here’s the real third-part behind this, wage increases will never keep up with inflation and cost of goods.
A lot of people don’t think about this, but inflation is pegged at 2% per year. And by the way, in future episodes, we are going to talk a lot about inflation because it is a silent tax, and it is something that’s keeping the average American poor. The net worth of the average American is sinking every single year because inflation is growing at plus 2%, even though they’re saying it’s 2% or less, it’s really not 2%, because many of the things in the economy that the consumer price index measures are not even the real things that we spend every day. I mean, it’s missing fuel. It’s missing all this delivery. There’s so many things that are in the CPI index or that are missing from the CPI index that are not even counted.
So, the cost of inflation is outpacing wage increases. So, if you get a 2% wage increase every year and inflation is 2%, you’re really just breaking even. So, I would argue that you need to get a 5% to 10% wage increase every single year to just break even. And then, like I said, your expenses increase as well. So, pulling this all together, the three reasons why getting a wage increase does not fix your money problems. Our expenses always rise to our income level. You still have to trade your time for money. And inflation will always outpace the wage increase guaranteed 9 times out of 10.
Here’s what we do about it. We start changing our mindset from income and expenses and all the gurus, by the way, will constantly tell you as you’re increasing your income, what we really need to do is get our expenses down. Well, I don’t know about you, but I want to live a good life. I don’t want to live a life until I’m 65 years old, not have fun, not enjoy myself. I want to go out with my friends. I want to have a Starbucks coffee every once in a while. I want to go out to a nice dinner. I want to have a nice car that I don’t have to worry about breaking down on me all the time. I want to have a nice TV. I want to live in a nice home. So, the gurus will tell us to keep our expenses really low, live below your means. And I’m not saying that I don’t totally agree with that. But what I am saying is we need to shift our mindset to assets.
Well, Mike, what’s an asset? An asset is something that puts money in your pocket. A liability is something that takes money out of your pocket. Same thing with an expense, right? The difference between a liability and an expense is a liable ability is something that you have to pay over and over and over, an expense is something that could be just a one-time cost. And a lot of people will lump expenses or liabilities into the expense column. And while that’s true, you know, my monthly mortgage expense, let’s say it’s $2,000. Yes, it’s an expense it’s but it’s a liability because I owe it long-Term. It’s note that I have to pay overtime and it could be one year. It could be five years. It could be 30 years, but that’s a liability.
The key to long-term wealth and success is not making more income from my job, which again, as we talked about, I have to trade my time for money. The key to long-term success is having more assets that put money in my pocket and the key to success there with assets and liabilities. And this is real estate 101 and also business 101 by the way. When I have a real estate asset that puts money in my pocket every month, I need to make sure that the liability, the mortgage payment is less than what that asset is minus expenses as well. So that’s the key to long-term wealth, putting more assets that put money in your pocket, into your portfolio.
Lot of times we over-complicate this because people will get on and they talk about assets, liabilities, and we don’t really understand what they’re you’re talking about. But the simple thing is a car could be an asset. How can a car be an asset Mike? Like, well, you could use it to drive Uber, but now you’re trading your time for money again, but you’re using that car as an asset to make money. Let’s take it a step further. You could have a car that you put on Turo that you don’t have to trade your time for money. You could rent that car for $65 an hour on Turo. And now what used to be a liability and an expense now becomes an asset because it could make you $500 or $800 a month. If you don’t know what Touro is, go check it out. Cause you could turn your liability or your expense into an asset. It’s pretty cool.
Another version of an asset would be a rental home. Let’s say that you want to have a part-time house in Phoenix. Well, you can take that home that’s a liability, because it costs you money. You have to like pour money into it every month, you have to pay the mortgage, you got to pay expenses and then you could rent that house out while you’re not there. And now becomes an asset. How about a fourplex? You have to pay rent, right? So instead of living in an apartment, maybe you go buy a duplex or a fourplex. And so now instead of, you know, paying your monthly rent to the apartment building, which is an expense that the income goes into the landlord’s pocket. Now you’ve taken this duplex, that you have a mortgage on, and you’ve turned it into an asset. How? Well you live in one side and then you rent the other side. And so maybe your rent instead of being $2,200 a month, living in a nice apartment, maybe your rent’s only $400 a month because the tenant next door that you rent it to pays all of your expenses and your liability, the mortgage associated. I’m trying to keep this simple. And by the way, in future episodes, we’re going to do an episode just on assets, digging deeper, just on liabilities and the entire balance sheet. So, here’s what I really want you to thinking about. And I’ll wrap it up with this.
The average American, most of us spend so much time thinking about how can I make more income. That’s a good thing to think about. The other side of it is we’re thinking about how do we lower our expenses. Also another good thing to think about, but like I said before, I want to enjoy my life and yes, I want to make more income, but I also don’t want to live, you know, so far below my means that I’m not having a great time. So, the trick to that is increasing your assets, buy more assets that put money in your pocket, use the money you make from your job. Use the money you make from, you know, your side hustle, use the money you make from YouTube, whatever it is, make sure you take that money and put it into cash-producing assets. That’s the key to long-term wealth. That’s the key to prosperity. And that’s the lot faster way to get to higher income and keep your expenses at a level where you live a happy, prosperous life and get everything you want.