When you’re investing in assets, what would be your greatest financial asset? Your house? Your investments?
The average stock market return is 7%, the average return on commercial real estate is 9.5%. Unless you’re already retired, your greatest financial asset is most likely your career.
That doesn’t mean saving and investing are not important, because they are! If you spend everything you earn, you’ll never get wealthy. So try to save some money from every paycheck.
If you don’t invest and leave your entire capital on a savings account, you will take much longer to reach any of your financial goals. So invest in easy structures, like an index fund which is also the preferred investment method of the famous Warren Buffett.
Your career is the driving force to building your financial assets. If you are able to increase your earnings throughout your career, while keeping your spending around the same level, you’ll have more money available to spend, save, and invest.
Your Greatest Financial Asset
Let’s begin with estimating the lifetime earnings of a new graduate.
Let’s say you just graduated, so you will earn an average of €2500 per month or €30,000 per year. You’ll have a career of 45 years, and you get an average of 3% pay raises per year. This means you would earn a total of €2.8 million in your life! That’s a huge amount of money!
This implies that your career is an asset worth €2.8 million, that’s not too shabby right?! I’m guessing that you don’t have any other asset that is worth more than your career, as is the case for the majority of people.
So for the average of 3% pay raises per year, let’s look at the growth rate. This is the same argumentation as for compound interest:
You increase your income slightly above average: 4% per year. You end up earning €3.6 million ; that’s €850,000 more in just principal wage! For just having an extra 1% growth every year. If you double the increase in your income, at 6% per year, you end up earning €6.4 million . That’s 128% more total income, with anadditional salary increase of 3% !
Compounding like Warren Buffett
Okay, so you’ve increased your salary, now what? Don’t stand there and do nothing, i
If you’re investing the money you saved from your career throughout your life, you will even have more results!
You’re not getting a 3% yearly salary increase, but 4%. After 5 years, you will earn €36500. When the difference between the salaries is invested for the rest of their career, this 1% extra income turns into an extra €2.4 million. This is assuming a 7% market return.
This means that you’re getting an extra €3.6 million + €2.4 million is €6 million throughout your life. That’s a lot of money, right? So I hope you start to see the importance!
[Related Read: 11 Powerful Lessons Learned from Warren Buffett]
My 21% Return on Investment
I started working in April 2018, at a secondment Financial Consulting firm. They told me that my starting salary would not be extremely high, so then I looked around at other companies. I noticed that the salary may not be high, but the growth potential of someone working in this sector is increasing over the years.
Basically, you are working at clients for 6 to 9 months, helping them with issues they have and moving on to the next company. Therefore you see a lot of companies within a relatively short amount of time, increasing your relevance for the sector.
In my February goals, I included that I wanted a €400 raise, as I had my performance review in February and I believe that they were underpaying me.
I went ahead and got a €477 raise + a promotion. Well, I did not see that coming! That means that I am having a 21% Return on Investment in just 9 months!!
That is better than any of my individual investments did, so yay for my career!
I have no other current investments with this rate of return.
Focus on the Skills
There are several things to focus on when you want to catch this >3% salary increase. In summary, these are:
- You are doing all the right things – measured by excellent reviews
- You’re networking – measured by attending gatherings and connecting with colleagues
- You are a team player – measured by offering help to your coworkers
- You’re upping your skills – measured by classes or courses taken
- You’re focusing on the basics
- You’re asking and communicating
- And never forget to look at your options
If you want to go into this in more detail, head over to my other post here.
So if you’re willing to put in the work, you can literally add millions to your life by focusing on an above average career. In that way, it certainly won’t take 45 years to become financially independent.
- If you are becoming impatient on the way to financial freedom, I understand, me too
- If you haven’t figured out your numbers to becoming financially independent, check out my Ultimate Guide for Financial Independence and Retire Early
- How to make Early Retirement even possible
Are you making your career a priority? What are your thoughts?