I live at home with my beautiful wife, 3 week old son, cat, and dog. My wife and myself both generate money through our jobs, but our 3 week old son, cat, and dog do not… obviously! My wife and me are responsible for keeping the lights on and food on the table. We are paying down debts and saving for our retirement, which is quite typical for most American households. Unlike most American households, I run mine like a business. So, what does that mean exactly?
I track the day to day operations in an excel spreadsheet to assure income is always greater than expenses. Long-term goals and short-term goals are reviewed at the beginning of each year. Salary increases are expected to be 3.5% to 5% on average over a 5 year period, which allows you to keep up with inflation. We can call this your top line growth. You should also look to reduce expenses and the target would also be 3.5% to 5% per year, which can be very difficult. This would be considered your bottom line growth.
When we talk about top line growth for your personal income, it can be very dependent on your employer. To maximize your salary growth year over year, you will need to produce results and show your company that you are worth it. To become a valuable employee, you need to further educate yourself, become a top performer, and network with all levels of the organization. If you do these three things and are still not gaining the salary increases you desire, then you should start looking outside of your organization.
When we talk about bottom line growth for your personal expenses, it can be very difficult to reduce. For example, we need gas for heat, electric for lights, and food for our health. We can try to look into different gas and electric providers for discounts. We can also use coupons for food. If you are shopping at a regular grocery store, then you might want to try looking at an Aldi or Lidl grocery store. I have written about this in my blog titled, Value Grocery Shopping.
Let’s take a quick look at a quick example of how this might play out. Let’s say you bring in $70,000 per year. If you increase your salary 3.5% per year for 5 years you will be at $83,138. If your beginning expenses per year are at $50,000 and you decrease them 3.5% per year for 5 years you will be at $41.841. This means you are making $13,138 more since the first year of making $70,000 and spending $8,158 less since the first year of spending $50,000. This gives you an extra $21,296 per year, which is very useful.
We really need to start thinking in terms of improvement year over year. The immediate changes seem small, but as we can see over a 5 year period it really does add up. By following this strategy, we can be sure to improve our financial situation.