Future You is going to be rich or poor. The choice is yours.
This post is aimed at those folks who fall between the two ends of the financial spectrum. It’s not for those who are already uber-wealthy, nor is it for those who are living paycheque-to-paycheque. Rather, I’m aiming today’s words at the ones who still have to work to pay their bills, who have some fat to cut from their budgets if necessary. These are the people who still have financial options. Choices made today will determine if they are rich or poor in the future.
Inflation eats away at everyone’s spending power. It is imperative that you accept this concept when thinking about Future You’s finances. Prices go up over time. The 18 months prior to this post have been particularly challenging because inflation was nearing the double-digits. Everyone saw prices increase at a phenomenal rate, while their paycheques were not keeping pace. While a 4% raise is always nice, it can hardly compete with 8% inflation everywhere else.
So while inflation has “slowed” as the economists like to tell us, it’s still around. And it’s not going away. Prices are still going up but they’re simply going up more slowly.
The Book-Ends of the Money Spectrum
As I stated to at the beginning, this post is not for the uber-wealthy. They have lots and lots and lots of extra fat in their budgets. Increases in the prices for groceries, gas, utilities, and shelter will have no impact on their lives. No one will be crying the blues for the wealthy ones.
People at the other end of the spectrum are the ones who are living paycheque-to-paycheque. They work, and they earn, and their paycheques are gone in a heartbeat to pay for the cost of living as soon as they land in the bank. After shelter, food, gas, and bills, the P2P-group has very little, if anything, leftover. These good folks are in a legitimately terrible situation. They’ve already cut out the “little extras” and are still barely making it. I don’t have any good suggestions to easily fix their situations.
The rest of the folks land between these two ends of the spectrum. These are the ones who will either be rich or who will be poor. It all depends on whether they invest some of their disposable income into income-generating assets.
Financial Assets Move You Towards The Wealthy End
I’ve spent many decades reading financial articles, websites, and blogs. The one lesson I’ve learned over all this time is that successfully investing for cashflow takes some time but it pays off in the long-run. I chose dividends and I’ve stuck with dividend-investing since 2011. I’ve made plenty of mistakes and my choices were not perfect. That said, my army of money soldiers will help me to weather inflation’s impact on my future income. My employer is not interested in giving me 7% salary increases every year, no matter who hard I work. Yet, my costs of living will continue to rise as inflation inexorably moves forward. I could get another job, but I really don’t want to.
Instead, I’ll have my dividends do the heavy lifting for me.
Years ago, I set up an automatic dividend re-investment plan, aka: DRIP. As my dividends were paid out each month, I would DRIP them into more dividends. Between the DRIP amount and my regular monthly contributions, I was compounding the number of dividends that I was buying each month. Every dividend that I owned paid me a few cents each month. Naturally, I only earned a few dollars each month when I started in 2011. It was hardly enough to buy a cup of coffee. However, it only took a few years before my dividends were generating $1,000 per month for me. And a few years later, they were generating $2,000 each month.
Believe me when I say that an extra $24K per year is more than a 4% raise from my employer. Thankfully, I was one of the people who lived between the extreme ends of the spectrum. After food, shelter, transportation, and utilities, I had enough money leftover for investing and other things. My choice was to invest before paying for the others things, aka: travel, theatre subscriptions, and whatever other non-necessity happened to catch my eye.
Looking back now, I’m very happy that Young Blue Lobster understood that investing was the only way to stay ahead of inflation. Young Blue Lobster intuitively knew that it was perilous to count on an employer, and that increasing one’s income is the responsibility of the person earning it.
Inflation Will Move You Towards Poverty
If you have the means to do so and you choose not to invest, then you are making the choice to let inflation push you into poverty. What used to be affordable becomes less and less so over time. The fact that you can’t afford something is not going to motivate retailers to drop the price. Waiting for the government to “fix inflation” is not a great move either. It’s best that you assume prices will go up faster than your paycheque will increase. Once that first step has been taken, your next best move is to start investing part of every paycheque for long-term growth.
Your investment portfolio will eventually grow to a sizeable amount, and its annual increase in size will outpace your salary gains, whatever they are. The more you invest and the sooner you invest, the bigger and sooner those gains will be. Other than telling you to win a lottery jackpot, I have no feasible ideas on how to earn big money quickly. What I do know, from personal experience, is that buying into the stock market on a consistent basis for many years and always re-investing the dividends (and capital gains) has meant that my annual income has increased far beyond anything my employer has given me. And since I’m on a DRIP, those increases will continue for as long as I’m alive because of the power of compounding and organic dividend growth.
Never forget that there are many forms of income and your employer only controls your salary. Unless you’re already living paycheque-to-paycheque, you owe it to Future You to invest some of your money. Be proactive. Start slicing the fat from your budget today and investing it wisely so that you, not inflation, control when, where, and how to make adjustments to your budget.
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