Maximizing Your Wealth: Why Increasing Income Outweighs Investment Returns

In this episode of The Retire Early Retire Now podcast, host Hunter Kelly, a certified financial planner, discusses the crucial importance of focusing on increasing income rather than obsessing over the rate of return on investments. Aimed at high-income professionals in their thirties and forties, the episode explores how to boost income through negotiating raises, learning new skills, and starting side gigs. Through real-life examples and actionable steps, Kelly shows how enhancing income can have a significantly larger impact on financial growth compared to achieving slightly higher investment returns.

00:00 Introduction and Podcast Overview

00:18 The Importance of Increasing Income

02:21 Why Rate of Return Isn't Everything

08:32 Real-Life Examples of Income Growth

13:37 Actionable Steps to Boost Your Income

20:23 Conclusion and Final Thoughts

Check out the Palm Valley Wealth Management Website
PalmValleywm.com

Check us out on
Instagram
LinkedIn
Facebook
Listen to the Podcast Here!
Apple
Spotify

Transcript

0:00

And welcome back to The Retire Early Retire Now podcast. I'm your host, hunter Kelly, certified financial planner, and I do this podcast every Tuesday to help high income earning professionals maximize their wealth. And today we're gonna have a chat about money that might just change the way you think about your finances. If you're in your thirties or forties, this episode is for you. We're talking all about why focusing on increasing your income is much more important than sitting there and obsessing over the rate of return that you're getting inside your investment accounts. Think about it. Most of us are probably constantly looking at our Fidelity app, our Vanguard app, our Robinhood app, and asking ourselves, is my 401k growing fast enough? Should I be getting a higher rate of return in my brokerage account? But do we, how often do we ask ourselves? How can I earn more money in the first place? And this, in this episode, we're gonna dive into that Id that idea, we'll explain the concept in a casual down to earth way with no complicated financial jargon. And by the end, you'll have a fresh perspective on how to boost your financial future. And here's how we're gonna do it. First we're gonna explore the idea of why income is actually more important. Then obsessing over your investments, especially early on. Then we'll share some real life examples. And trust me, you're not alone on this idea. And after that, we'll talk about some actionable items, because what, what good would it be if we just point out a problem and not have a solution? So we'll talk about how we can increase our income from negotiating raises, learning new skills, and picking up a side gig. whatever suits your needs. And then finally we'll wrap it up with a conclusion that puts it all together. So whether you're sipping on your coffee, driving to work, or listening to it during a workout, make sure you share this with a friend and leave a five star review that really helps this podcast grow. And if there's a certain topic you would like to hear, there is a chat button in the show notes, that you can click on and gimme your ideas or maybe questions that you'd like me discuss to discuss on this podcast. as an example, the. The episode last week was a from a podcast listener in the Chicago era. So I appreciate you guys reaching out and giving me some ideas of what you guys want to hear, because at the end of the day, what I talk about doesn't matter as long as what we're talking about matters to you. And so let's jump right into it. Why focus on income over your rate of return? Well. One, what is rate of return? So rate of return is how much your money grows when you invest it. And so most of the, most of you that have been listening probably understand that concept. And of course, we all love seeing our investments go up, whether that's in your retirement account or your brokerage account. It's exciting to see you making money. However, the percentage gains can sometimes distract us from the bigger picture. What is the actual dollar amount that we're putting into those investments, especially early on in your investing career? Imagine the scenario you have some money that you invested maybe for retirement, so in your 401k or an IRA, something of that nature. And let's say it's$10,000 and you do a really good job of earning 10% that first year. Well, what did you earn? a thousand dollars, right? Not bad. So you had$10,000, you got your 10%, now you have it.$11,000 sounds great. Now let's consider another scenario. And instead of obsessing over, looking at your investment account every day and trying to earn that 10%, what if you put more effort into boosting your income? So maybe you took a small freelance job, you asked for a raise, and you got a raise, and you were able to make an extra$5,000 that you could put inside of this account and that in same count, instead of earning, let's say 10%, you only earn 5%'cause you weren't washing it and trading it as much, whatever the case may be. So that$10,000 plus the extra$5,000 that you earn. In dwarfs the first scenario where you had 5,000 or$10,000 and only earn 10%, right? So earning more income, can, or saving more is going to drastically increase your, your investment account much more than earning, let's say 10% on like a$10,000 account. So in simple terms, the amount of money you invest early on often matters much more than the percent. Return that you're receiving, especially when you're not dealing with huge investment accounts. So if you don't have a million dollars yet, if you only have that$10,000, it's much easier to go out and earn a thousand, 2000, 3000, 4,000,$10,000. than it is to go out and try to outperform the s and p 500, outperform the equity markets. So for a lot of 30 to 45 year olds, your investment accounts might be only tens or, a few$10,000 or a few hundred thousand dollars range, depending on how long you've been at it and investing. And so an extra one to 2% on your RROI is nice, but it might not equate to just a couple thousand dollars difference, or it might equate just to a couple thousand dollars difference. On the other hand, a salary bump or new income stream could bring you in thousands, if not 10 thousands of dollars extra each year that you can invest. And over time, this is a far. bigger impact. another way to look at it is what is in within your control. You have a lot more control over your earnings and the, the income that you have or can make versus you do over a stock market or the global economy. So you can choose to learn a new skill, you can work harder and or smarter at your job. You can start a new business to earn extra money. the things that you can't do is you can't affect, the prices of stocks, the performances of stocks or bonds or interest rates or things of that nature. the income is things that we can directly, uh, influence in our lives. ROI, on the other hand, depends on many factors that you cannot control. if you focus on your career and your personal development, chances are you'll see progress in your earnings. It's kind of empowering once you realize this, Hey, I control how much my income is, whether that's starting a job, going into your boss's office, asking for a raise, going to a different company, doing a similar role, but actually making more money, using that as, negotiation to get the raise, whatever that may be. you have control over that. Again, you don't have control over markets, interest rates, economic cycles. Now let's get one thing straight. We're not saying rate of return doesn't matter. It definitely does. Over the long run, getting a decent return, getting that extra one or 2% in your investments is crucial, growing your wealth and beating inflation. We're not saying it doesn't matter. However, the point is that most people. In their prime working years, the contributions you make and the growth of your income itself has an outsized effect on your wealth. So this is what I'm trying to convey. Income increasing that income is much more important, especially early on than trying to, overtrade or maximize and seeing kind of like a diminished rate of return. on the time that you're putting into chasing this extra percentage of return when we could spend that same time and energy, potentially earning much more money and not having to, rely on the rate, rate of return so heavily early on. Right? And so let's sum up this main point. Increasing your income gives you more money to invest and spend, and oftentimes, has. A bigger impact on your financial success then eking out a slightly higher rate of return on your investments. It's about feeding your investments investment pool with more money so that even an average return will lead to substantial growth. So again, you get 5% on 10,000 or 5% on a million. what makes more dollars, right? So 5% on a million is gonna make you$50,000, 5% on, 10,000 is only gonna make you 500. So if we can get to the point where we're saving and because of our savings rate is, is so high that we can get to that million dollar faster because of our savings, well now we can start to earn more money. And so let's talk about a few things, real world things. So, um, I wanna talk about my, my personal situation, right? So. I got into, when I first graduated college, I decided to be a teacher and I taught high school, college biology and freshman biology and high school. and so I was making like, I don't know, 35 to$40,000 a year, and I realized that I wasn't saving much money. I was, I just married my wife. we wanted to have kids and while we weren't necessarily going into debt because of that income, we certainly were not saving much money. Right? And so I had to make some changes, right? And, and investing, wasn't going to get me out of the situation that I was in. it was investing in myself and determining, Hey, I need to get out of, the situation that I'm in. And so the only thing that I can control is saying, Hey. This job is not producing enough income to get me to where I want to be, and so I have to make a change to increase my income. there was a couple things I considered. I considered moving outta state to where, I can make more, teaching. I considered starting a job. during the summers when I was off and then I considered getting outta teaching as a whole and, and that's what I ended up deciding to do. that led me into financial planning. I worked for a larger broker dealer. I had to take my series. I. test and, and do all those things to get certified, to be able to work with clients and things of that nature. and then ultimately I was able to increase my income. So I increased my education. I increased my skill to work with clients, educate them on their situation, help them with retirement and all kinds of different things that helped them. With now. Right. and ultimately I was able to increase my income and if I fast forward a few years later when I'm starting to think about, starting Palm Valley Wealth Management, it was kind of the same thing. I'm kind of in this. Role with this firm? I'm not really seeing a lot of growth. I feel like I'm providing a lot of value to the firm, but I'm not receiving the compensation that I thought was fair. and so I started doing research. Do I go to a different firm? Do I start my own firm? What does that look like? What does that cost? What are the, the extra, compliance things and whatnot that I have to do? again, the thing that was in my control wasn't the investments that I had, my 401k or my brokerage account. getting an extra two or 3%, yeah, that would've been nice, but, it certainly wasn't gonna change, my way of life or anything. ultimately the thing that I had within my control was to say, Hey. I can go out on my own, I can do this business and I can make more money for my, myself and my family, and it'll get us closer to kind of where we want to be financially. And so I say all that to kind of illustrate that. Yes, I was investing at the time, I was just starting out so I didn't have, Hundreds of thousands, hundreds of thousands of dollars or a million dollars that if I got it a couple extra percent, it would make a material difference. I had quite, quite less than that, right? And so, uh, the only thing that I can control, really the only decision I had was to continue to increase my value to the, to the market, right? So become a financial advisor, do these things, and I make more money. and so another example is a friend of mine that lives down the street for me. he is kind of in a different situation. he is starting a business, it's called Loozy. It's a, pretty cool business. He makes these coozies that look like golf gloves, so if you're really into golfing, um, it's kind of a, a novelty product. I. But it's a CZI that looks like a golf club. You can get, customized ball markers on it. whether you're doing like a golf tournament or some sort of party, you can have your customized logo and he can make the weather all different types of color schemes and things of that nature, right? And so he currently still works at his day job, but this is a way that he could bring in more money. while he's making his day job, he again. Didn't feel like his investments were doing that well. Didn't feel like he was making that much more money. One of the things that he did, we kind of, me and a couple other friends begged him to start this business'cause we thought it would, would do well. And in fact it has done well. And so now he's able to bring in, another five figures of income each year, just after a year of starting the side business. Right? hopefully the idea is that here, within the next six months to two years, something of that nature, he'll be able to go full time with this. But he did things within his control to grow his income. And so again, he didn't have. millions of dollars and, and things of that nature where if he were to, take a little bit better investment, portfolio or a better stock or whatever, it would make a material difference. again, he, he and I are kind of the same age. We're, we're within that five to 10 year window where we've just kind of started investing. And again, we just haven't had time to accumulate that. So the only way we can accumulate. Wealth materially faster is to increase our income. And so those are the things that we have done, to increase our income. again, let's transition to action items. What are things that we can do, to increase our income? So we've talked about my situation where I completely changed fields. I've learned a new skill. I be, I went from teaching to become a financial advisor and then took even a further step in saying, Hey, let me, not be the employee anymore. Let me be the business owner. And then I have my friend, that, is still working his job, but decided to start his side job, which is hopefully going to turn into a full-time job where now he, again, he's creating. no other source of income, for his family, and it's allowing him to, again, achieve his, his financial goals a bit faster. Right? actionable items, knowing the theory is one thing. So talking about these examples, knowing that we need to increase our income is good, but I wanna talk some more concrete steps and ideas. to hopefully get you thinking about, Hey, these are things that I should be doing to increase my income. So remember, the goal here is to find a way to bring in more money, which can, you can use to invest, save, improve your life, increase your lifestyle a little bit. If that's really what you wanna do, then, then do that as well. And so these tips are especially geared toward, Disney professionals, like a lot of us are. And so you don't have to do all of them. You don't even have to do all of them as much. each, each person's, goals and time horizon things are different. these are just some ideas that you can do to increase your income. And so first one, is probably. I wouldn't say the easiest one, but, as far as like changing your life and uprooting your life versus like getting a new job or something, this is, can be an easier one. Now, this may have just gotten a bit harder because, the economy is, is slowing down a bit. so hopefully you could still do this, but negotiating a raise or trying to get a promotion within your current job. So this is often the quickest way to boost your income, yet many people feel nervous about it. one way that you can kind of. Um, prepare for this is you can go out and do like a comp of other similar positions at other companies and see what they are getting paid. and if you're below that, then you have leverage to potentially get a raise because you could go out, especially if you're, in a position of need, you can go out and get that other job. Use it as leverage and say, Hey, I'm gonna make$10,000 more at X, Y, Z competitor. so can I have this right? so per. Prepare a case, for why you deserve more. Keep a list of your accomplishments, ways you've added value to your company, projects you've led, or money that you've saved the company or maybe generated revenue to the company. and then schedule a meeting with your manager. Discuss that growth, approach them, professionally, obviously. and then it show it's about showing value and what value bring to the company. And if they see that value, then they're likely to give you that increase. often companies won't offer, you more unless you ask. So it's important to advocate for yourself. Go negotiate Every salary is negotiable, right? And so even if it's a five to 10% raise, depending on your income, this could be thousands of dollars extra a year that you can put toward that investing. And again, the most important thing that we're talking about here is that your income will allow you to save more, again, if you have only a small amount of money in your investment accounts. Just because you've started out. the biggest rate of return on that account, quote unquote, is going to be the money that you put into that account, right? and so that's what we're talking about here. The next thing would be to upgrade your steals. So whether that's. for my profession, getting your CFP or your or CFA or other designations, if you're, in a tech type industry, what are some, certifications that you can get there? And so one of the best investments that you can do, with a guaranteed rate of return is investing in your own skills and education. So is there a certification or advanced degree that could bump up your salary higher, in the pay scale, in your field? For instance, if you're in it, maybe it's a cloud computer certification, could open doors if you're in marketing, learning, data analytics, or SEO that can help, be more valuable to the company itself. many professions see Big J professionals see big jumps in income after gaining, New in demand skills and credentials. So think about what's, what's a good way if you're wanting to stay within the company that you're in, what is a good way to add value to this company? So is there a CER certification that I can get that would add value? Is there a skill that I could learn that would add value? And if there is great, or maybe it's a skill I need to learn to start my business. and so again, maybe you wanna start a plumbing business or, electric, electrician business. How do I learn that skill to go out and start that business for myself? consider switching jobs or companies, and this kind of goes hand in hand with the last few things that we talked about. if you're doing a role that another company will pay you more for, go do it. go back to my friend that I talked about starting the company, Loozy. he was at, he works in logistics. He was at a logistics company, and they had him doing multiple roles. he was making less money. He decided to switch last year to a new company where he's doing less work and making more money. those jobs are out there, they're probably, less plentiful, than just switching in general and doing the same thing or making more money and doing more work. But, there's ways that you can say, okay, this is the value that I can add to this type, type of industry. What companies will pay me more to do this, particular skill or, be able to use my knowledge in this industry? The next thing would be to start a side hustle. I. or part-time business, right? Again, using my friend that started Loozy, it was kind of a thing that he enjoys. He enjoys golf. He came up with this idea of a cozy that looks like a golf glove. We're gonna call it Loozy. And now he's making, let's call it an extra 30 to$50,000 a year, with this particular type of company. And so. he's not as, he's not putting in as much hours, as maybe a full-time employee would. And so he's just trying to grow that and as it becomes more substantial income for him, at one point, at some point he'll go full-time with it. But if it's a side business just to get your investment accounts off the ground or pay off some debt, whatever that may be. so ultimately we can grow our net worth. that's kind of how we want to look at this. Have an end in mind with these side businesses. Don't just work 80 hours a week to work 80 hours hours a week and be miserable. when you want to take on a side hustle or a part-time job, have the end in mind. so you know why you're doing it. Right? And so in conclusion, we covered a lot. so let's bring it all together. The main message in today's episode is don't overlook the power of what you can control by increasing your income when it comes to building your wealth, achieving financial stability. yes, investing wisely and getting a great rate of return, on your money is important. It's certainly important, but you should still understand and pay attention to, your investments. diversify. Avoid mistakes like panic selling on a downturn like we've seen in the last few weeks. but you should also focus on increasing your income, especially early on. It's going to make much more of a material difference in your financial future. Then making an extra one or 2%. So for many of us that are in that 30 to 45, age range, these are prime years for us to grow in our professions and try new ventures. Don't be afraid to start a new business. Don't be afraid to go get a new skill or go get that extra degree, that master's degree, whatever that may be, to help boost your income. every raise, every bonus. Every profitable side business that you start or side project, is just more money, that you'll be able to use to build your, your future. And again, have the end in mind. Don't just earn money to earn money. understand why you're doing it so that when those times do get tough, you're tired, you want to start this business and things of that nature, and it starts getting hard. Have that into mind so you're not just doing it for nothing. Ultimately this extra income will fuel your investments and security of your, of your future. You heard in some of the examples how someone who put an effort to, like me to change their job, to earn more money, to, my friend Tyler that started a business, is ex earning extra money. On the side note, how just. Making some of those decisions about what they can control can change their life dramatically. what's the best part? Increasing your income is something that you have all the influence over. It's empowering to realize that your financial fate isn't solely tied to the start market up and downs isn't something that you can't control. It's all up. To you, your actions, your skills, and your initiative. So before we sign off, let's do a quick recap of action items we just talked about. Talk about negotiating raises, improving your skills, considering job changes, starting a side business and or freelancing. And so these are all ways to give yourself a financial boost over time. And if you feel a bit fired up hearing these good, I want you to go start that business. I want you to go ask for that. Raise. I. Make a plan this week. whatever you gotta do, make some more money this week, right? and again, it's not just to make money, it's to do those things that you wanna do. Maybe it's travel, maybe it's help your kids. Maybe it's buy a piece of property, maybe it's, buy a boat, whatever it is. Go do it. Ask for that raise, right? And so remember, focusing on your income doesn't mean you become greedy or work yourself to death. It just means working smarter to recognize what you're worth and what goals that you have for you and your family. So again, I appreciate it. If you think there's someone that can benefit from this podcast, go ahead and share it with a friend. again, send me a text through the link in the show notes below if there's something that you want to hear about. And leave a five star review on your favorite podcasting up. This podcast is for educational purposes only. It's not meant to be financial or investment advice. Do not make any decisions solely based on this podcast alone. Please seek professional, before making those decisions, and please keep Palm Valley wealth management in mind when making those considerations.