Now that we’ve covered the basics of this site, let’s spend the next few posts getting into ESI Money’s three focus areas — AKA the “three simple steps to wealth.”
Today we’ll talk about the “E” in “ESI Money.” As noted in the explanation of the site’s meaning, the “E” stands for “Earn.”
Why It All Starts with “E”
You’ve probably heard it said that the key to personal finance success boils down to “spending less than you earn.” I believe that’s a true statement. This means to do well you need to do two things — you need to earn something and you need to spend less than that.
It goes without saying that the more you earn, the easier it is to spend less than you earn. It’s also true that the more you earn, the larger your gap or cash flow which in turn drives your net worth. So spending some time thinking about how to earn more is a key part of becoming wealthy.
Best Ways to Earn Much More Money
For most people the most common ways to earn money include:
- Your career — For the vast majority of people, this is where 95% or more of their potential lies. It’s a large part of your financial success and deserves significant time and attention.
- Second job — This could be an actual second job, a hobby that produces some income, or even a small side business.
- Side business — This is more substantial than above. It’s something that’s a second job in and of itself (and probably more lucrative).
- Credit cards — Cash back on purchases as well as sign up bonuses.
There are others options but they are usually insignificant (FYI, I’d put income-earning investments under the “I” in “ESI” — which stands for “invest”). If I missed any big ones, chime in with your suggestions in the comments below.
Your Career is Most Important
Of all the items listed above, your career is by far the most important because of two main reasons:
- It’s a multi-million dollar asset.
- You can increase the value of your career asset by a significant amount.
Consider the following:
If you begin a career today starting at $40,000 and average 3% pay increases over a 45-year career, you will make over $3.7 million during that time. What other asset do you have that’s worth almost $4 million?
Using the same basic numbers, let’s look at some different examples of how you can make your career worth even more:
- You double the earnings growth and average 6% increases per year. You end up earning over $8.5 million during your career.
- You earn a decent amount above the 3% and average 5% increases per year. You end up earning almost $6.4 million during your career.
- You earn slightly above average at 4% per year. You end up earning over $4.8 million during your career.
Even if you only earn 1% more than average, you end up with over a million dollars more! And if you do a bit better than that, you can literally earn millions more during your lifetime.
So doesn’t spending some time, effort, and money on developing your career sound like a great financial investment? It does to me!
Think it can’t be done? I’ve averaged over 8% per year for 25 years — and the last decade or so I haven’t really been trying hard as I’ve put other priorities first (like time with my family). Good news #1: it can be done. Good news #2: I will tell you how you can do it. Good news #3: You don’t need anywhere near 8% annual growth in salary to earn millions more than you would if you did nothing to grow your career.
We’ll discuss these issues (and more) a lot over the life of this blog.
As you might imagine, all other income opportunities pale in comparison to the potential of your career. The one exception is owning your own business. But this option also comes with a lot of risk and isn’t suited for most people. So while we will talk about owning your own business from time to time, the major focus will be on developing your career.
That said, there are smaller ways you can pick up some extra money. Credit card rewards can be worth hundreds if not thousands per year. In upcoming posts I’ll share my strategies for making the most of this opportunity. I’ve probably earned $20,000 or more in credit cards rewards during my adult life. That’s a new car!!!
A side business can bring in a few thousand if not more (I’ve done this as well and will share thoughts). Even a hobby can generate a meaningful income. I’ll take you through several of these ideas over time. And I’ll share readers’ ideas and stories of how they earn extra money. We will all be able to learn from each other.
The Basics of “E”
For now, as we consider the “E” in “ESI”, the vast majority of you should be thinking of your career and how you can manage it so you make millions more over your lifetime. Once you do that you’ve taken the first big step towards spending less than you earn.