How I've Grown My Income

I was playing around with Quicken reports the other day and decided to get some data on my income. I knew that 2007 was a banner year for me (good results/bonus at work as well as solid outside income), but I wondered how much my income had grown through the years. So I looked at my current data and compared it to what I would have earned just out of college if I had decided to take a job. I then calculated the compound annual growth rate (CAGR) of my income from that time until today. Here are the results:

• If I only count the base salary (no bonuses or extra income) from my job, my CAGR since graduating college is 13.78%.

• If I only count total compensation (salary and bonuses) from my job, my CAGR since graduating college is 15.33%.

• If I count all income (including side businesses, capital gains, dividends, etc.), my CAGR since graduating college is 17.07%.

I expect these to go down a bit (I don't think 2008 will be as good as 2007 in terms of income, so if I calculated them at the end of 2008, I'd get smaller numbers), but even if they drop a bit, these are still solid results.

So how did I accomplish them? Here's my step-by-step guide:

1. I got an MBA. It immediately doubled my income for a two-year time investment. And it only cost me $5,000, so it was a great investment.

2. I actively managed my greatest asset: my career. Some of the principles I applied to try and maximize my income:

• I've asked for raises.

• I've promoted my work and contributions to my companies, especially to my bosses.

• Outside of work, I expanded my skills and met new people.

3. When needed, I've switched jobs to new ones that paid much better. Keys to this process were having a great cover letter, preparing a strong resume (using a classic format) and making sure my interviews were successful.

4. When offered new jobs, I didn't settle for their initial offer, but asked for more.

5. When I've had bad jobs, I didn't derail my career by quitting before I had another position. No, I gritted my teeth and dealt with it -- a couple times for over a year (once nearly two years).

6. I turned my hobby (writing) into an income. It's delivered a good amount of extra money to me throughout the years, and ultimately led me to start this blog.

7. I've spent less than I've earned for years, and consistently saved a good portion of my paycheck. And through compounding, this has grown into a nice nest egg that puts off a good bit of income (though I try to minimize income from investments and prefer simply to build wealth through investment growth.)

Let me end with a few more income-related comments:

1. When I talk about the importance of growing your income, I'm not just making it up. I've lived this advice for almost 20 years and I know how it's impacted my net worth.

2. When I talk about how to grow your income, I'm not just making it up. I've lived this advice for almost 20 years and I know the principles I've used have worked.

3. I list points #1 and #2 because I feel that many personal finance writers and "experts" write about what people (including themselves) should do financially, but they don't apply it to their own lives (or even know if it will work, what the practical issues are, etc.) Instead, I'm writing about what I've done -- what has worked and what hasn't -- from my personal experience.

4. You can do the same things I've done and have similar results. See the tips above as well as read 11 Great Ways to Earn More Money. Apply them and you'll see your income grow nicely too.

Comments

[Paul]

Can you explain how to calculate the CAGR for your income?

[FMF]

Paul --

http://www.investopedia.com/terms/c/cagr.asp

[NW]

I found this article interesting. You mention it's over a 20 year period, was the bulk of this period during the time that you held a 40 hour a week job? I went and calculated my CAGR over the 4 year period I have been working since college and it's 23.56%, I found that number interesting. It's true... having an advanced degree can really create an income influx.

[FMF]

NW --

Yes, I've always had a job (and still do), so it's all been while I've been working.

FYI, some of my biggest gains percentage-wise were early on -- just after I got my MBA.

[Dimitri]

Interesting post. I like the CAGR concept. Thank you for providing some "food for thought" to sate my financial appetite.

I also agree with your "MBAs are good degrees" premise. I am completing mine and I see fundamental changes in the way I approach financial concepts both at work and at home.

[aks]

Hmmh, I missed the boat I guess. I have an engg phd but wanted to do an MBA. Now I am 41yrs old, don't think it is possible or it is worth. Anyway, my salary CAGR came to be 6.5% over 8 years. At least I beat the inflation rate!