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Friday
Jun272014

Earnings, Savings, and Time

In my writing over the last two years here at LTNE, we've spent a good deal of time talking about saving money.  We've sold a car to become a one-car family, cut our cable TV, replaced one of our cell phone plans with a very inexpensive home telephone solution, worked hard to save money with our grocery shopping, cut our restaurant expenses, worked to be intentional about spending, and on and on.  

All of this has made an immense difference in our savings rate, which has allowed us to dig out of debt and start some pretty substantial monthly investing.

But here's the other side of that:  we've also increased our incomes substantially over the last two years.  As much as we've talked about passive income-- and I'm a genuine believer in maximizing as many income streams as you can-- our active income has made the real difference between our old financial insecurity and our new, burgeoning financial security.  

I'm at the peak of my earnings years in the military and my wife returning to work has added another substantial chunk of monthly income that we can turn around and immediately invest.  These facts matter immensely.

At the apex of our internet-based passive income effort-- with all of the hundreds and hundreds of hours we'd invested into this site and our other ones, we only just approached the $1000 threshold in monthly passive income.  As a percentage of our monthly active incomes, this really is fairly insubstantial.  

In many ways, getting ahead financially really is a three-sided proposition:  you have to earn, you have to save and invest, and you have to have time.

So, is it possible to have a secure financial future with low earnings?  It will be tough, but if you have a long-enough horizon and you save enough each month, then maybe.

Can you spend a ton and still get ahead?  Sure, if you have a high enough income.

What about us?  We increased our savings rate each month to well over 50 percent now (and I'm trying to squeeze out even more!).  Where we suffered was in our time horizon.  For far too long, we had very little savings and investments, but we counted on the very worthwhile military pension earnings that we looked forward to, plus a sense that I'd leave the military and move fairly seamlessly into a high-paying job.  When we became less certain of that glidepath, late in the game, we've needed to really amp up both our savings and, where we could, our earnings as well.

No doubt, this is all common sense in many ways, but how many of us still bone it up?  

If you want to have a Scrooge McDuck pile of money to dive into at one point in your life, you'd better amp up your earnings, save as much as you can, and start early.  Don't forget:  this pile of money isn't an end in and of itself.  That pile of money represents freedom-- well, at least as much freedom as money can provide.

If you fail at one or more of these, the other leg(s) will have to make up the difference.  

If you have a low-income job, is there a path to a higher income there?  If not, can you get a new job?  If not, how else can you increase your earnings right now?  

If you are spending too much, what can you cut right now to increase your monthly savings?  Have you eliminated all of your soul-killing debt?  If so, is your money working for you now, with solid investments?

If you don't have a long time horizon, you're going to have to brute force your way-- right now-- to a better net worth, as you've already sacrificed the time value of money and need to do your best to make up for that fact.

As always, we welcome your thoughts in the comments!  

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    Earnings, Savings, and Time - LTNE: - Live the New Economy.
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    Earnings, Savings, and Time - LTNE: - Live the New Economy.
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    Earnings, Savings, and Time - LTNE: - Live the New Economy.
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    Earnings, Savings, and Time - LTNE: - Live the New Economy.
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