Dec

20

more compounding benefits

Filed Under education and career 

I have no life, so last Saturday night I was doing some filing I found that I’d kept all my salary award letters since I graduated from University.

I enjoy my job, but I’m unlikely to ever set the business world on fire. It took me quite a while to find my place at work. If you’d asked me a a couple of years ago whether I’d be still there now, I’d have said it was unlikely. It probably shouldn’t come as a surprise for you to know then, that I’ve been slightly on the slower side of average in getting promoted (although I’m planning on changing that), and my pay rises have been solid but not spectacular.

However, looking at a small chart of my salary compared to my initial starting salary over time I can see that I earn a lot more now than I used to:

Salary Chart

Actually, I now earn about a third more than I did 5 years ago, despite the fact that my pay rises have averaged at about 6% annually. This, I think, is another example of the benefits of compounding.

I’ve definitely inflated my lifestyle since I was a student. I live on my own in a house that’s probably a little bigger than I really need. I go out for drinks on a whim. I eat real food sometimes, and jet off for holidays to the States. But I’m still not doing badly at keeping what I make.

You’ll be pleased to note that I’ve been investing since I started at work - initially just in my money purchase pension (equivalent to 401(k)), but now in other tax-advantaged accounts as well. And I also have savings equal to about 3 months income. I can, and will, be doing more in the next year.

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Comments

10 Responses to “more compounding benefits”

  1. Rob Lewis on December 20th, 2007 12:20 pm

    It’s interesting seeing a graph of salary like that - I might do something similar. I was lucky enough to get an unexpected pay rise of a decent amount last year, so it probably wouldn’t be as smooth a progression as yours, but it’ll be interesting to see it in graphical form.

    Unfortunately, I find my spending grows to take up any salary rises I get!

  2. plonkee on December 20th, 2007 2:28 pm

    That’s the expenses expand to fill all available income principle at work - difficult to overcome, but it’s not impossible to keep it down to semi-inflationary levels.

  3. Lisa Clark on December 20th, 2007 3:25 pm

    Like Rob my income, which has double in the last five years, and my expenses have some how increased at the same time. Really it is my spending has increased.
    Something I am working on.

  4. Mrs. Micah on December 20th, 2007 5:47 pm

    I know some people, when they get raises, reroute part of it into automatic savings. If they get $150 more a week, they put $75 towards savings and allow their lifestyle to inflate by the rest.

  5. Monica on December 20th, 2007 8:20 pm

    I do what Mrs. Micah says. Well, actually I reroute all of it, not just part. And it’s not going to savings, but to debt reduction.

  6. plonkee on December 20th, 2007 8:32 pm

    I like automatic too. I tend to put a little into extra fun money, recalculate standard bills (tax, water, etc) and then put the rest into savings.

    But, when I bought a house I had to completely redo my budget so I’m a pitiful saver at the minute. This will change as I get more pay rises and inflation eats away at the mortgage payment.

  7. Rob Lewis on December 20th, 2007 10:41 pm

    I will definitely try the automatic saving method the next time I receive a raise.

  8. plonkee on December 20th, 2007 10:47 pm

    @Rob Lewis:
    I’ll hold you to that.

  9. Double Journey on December 22nd, 2007 8:27 am

    I have tripled my income in the last 7 years from an already pretty high income. Despite this, I have maintained the same standard of living. If anything, I might even spend less.

    This has had a tremendous effect on my bank account and has allowed me to get to a point where I can be very picky about my job.

    There is a book called the Happiness Hypothesis. In it, it talks about how people receive a temporary high when they get a raise and a higher standard of living, but it is short lived. Eventually, people get used to it, and they regress back to their “normal” level.

    What doesn’t go away is the money in the bank. That’s why I’m so diligent about not only increasing my income but also not spending it when it comes in.

  10. Llama for brains on December 26th, 2007 10:02 pm

    I was planning on leaving my job a long time ago. About 5 years or so. But… its quite interesting although sometimes a bit hard (mentally taxing) and my brain isn’t always up to the job :( Not a good confidence booster ;)

    I will try what you have done with my salary history. I have all the payslips. Very lightweight payslips. Would like more passive income… but I have been a bit too passive in setting up passive income.

    I try the automatic saving and so on. But my finances are a bit of a mess these days. I sort of know what I have but up to date. I use an aura of not being able to afford things to stop myself buying things in the intervening time while I catch up with the finances.

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