The amount of cash flow you receive, active + passive.
Income is the 3rd most important KPI in personal finance, and a lot of people mistake it as being the most important.
- A higher income is potentially better for reaching FI, IF AND ONLY IF it is accompanied by a correspondingly higher Savings Rate.
- Do not elevate your lifestyle as you begin making more and more money!
Pitfalls of a Low Income
Pitfalls of a High Income
There are some! Including:
Increased stress from high salary jobs
Many jobs that pay impressive salaries demand working lots of hours (50-60+), which is in stark contrast to our goal of not needing to trade time for money.
You can dig yourself a much deeper hole
It is much easier to bury yourself into a financial hole making six figures than minimum wage.
All of a sudden, credit card companies are offering you financing options left and right, which require ever increasing willpower to resist.
Societal pressures to "flaunt your wealth" become higher and higher the more money you make, and the more impressive your job title. Neurosurgeons can't be expected to drive a 10 year old Honda Civic, right?
Lifestyle creep is the name for elevating your lifestyle up to your current level of income, and is the reason six-figure earners have just as low of Savings Rates as people making modest incomes. If you increase your lifestyle because you are making more money, you completely erase the benefit of earning more money!
What's the first thing people go for when they get a big promotion?
- Nicer apartment
- Better car
- Fancy meals out
The Big 3 expense categories often scale with your income, and should be avoided if possible.
Increase your Savings Rate