If your income increased 30% for a year

[tech/a]

Just wondering how you define 'passive'?

It's something I've worked on since around 40.

I'll give some examples.
Passive income of course is income derived from sources with little or at best no time input.

My super is paid into the SMSF from wages and rent of my office warehouse and land owned by my SMSF.
As I lessen my time at the office I will still draw a wage the same as the one I had whilst working my 55 hr weeks.
Rents from property are a passive income.
I'm currently working on some ideas for passive income through the net.
Then there is trading--- currently discretionary but longer term systematic is my preference.
It really doesn't take a lot to not have to worry at all about $$s
But of course the old adage is true --- Money makes Money.

For clarity and example

50k a year from trading
30k from rents
50k from super contributions
------ you get the picture.

 

[waimate01]

It could be a case of "ideals". What I mean is, it's easy for us to say "yeah, when I reach x it will be enough", but when we actually do reach x, we may think "why stop now when I can make more?"

Just so. Human nature is such that we compare ourselves to people "across and slightly up", never to our peers. We and all our friends have w, so we set ourselves the goal of x. When we attain x, we do not compare ourselves to those people with w and feel good to count ourselves to be among those with x, but instead we compare ourselves to the people with y. And so it goes on.

This is human nature and spurs us to quest ever onward. But it is also a source of unhappiness.

One of the reasons why money does not bring happiness is that once we attain a newly elevated financial status, we rapidly "re-base" and this becomes the new normal, and our happiness quickly returns to whatever it was before. The exception to this involves covering-off the true necessities - food, shelter, etc.

You see this with boating. Some blokes always want a bigger boat. There's nothing wrong with a bigger boat, that's for sure, but I always say that no matter what boat you have, there'll always be someone with a bigger boat than yours and always someone with a smaller boat than yours. And this is universally true, except for two blokes in the whole world. And of those two blokes, I guarantee the guy with the very smallest boat in the world is happier than the guy with the very largest. So we should all just be happy to have any sort of boat at all *

(* this is either an analogy, or actually about boats)

 

[craft]

Tech/a

You mention rent on property but not dividends on shares as a source of passive income. Why one and not the other?

Waimate01

I don’t think your boat analogy describes everybody’s motivation. Is it you motivation?

 

[waimate01]

Tech/a
Waimate01
I don’t think your boat analogy describes everybody’s motivation. Is it you motivation?

For boat, substitute flashier car, larger house, better bling, fancier media room, better private school for your kids, larger stash of gold, fancier holidays -- anything that causes internally-generated competition between yourself and those around you, and the pursuit of which for its own sake does not bring happiness.

 

[craft]

For boat, substitute flashier car, larger house, better bling, fancier media room, better private school for your kids, larger stash of gold, fancier holidays -- anything that causes internally-generated competition between yourself and those around you, and the pursuit of which for its own sake does not bring happiness.

I get the analogy. I don’t think however, that status and envy is everybody’s motivation.

Are you talking about yourself – are you saying you are motivated by envy and status even though you know it will not bring you happiness or are you saying you have no interest in achieving financial goals because you don’t think they are worth it? Or were you just posting a second hand stereotypical analogy - one which I think does not sum everybody up.

 

[Eager]

In real terms, my income from about 4 years ago would have probably equated to about 30% more than my income this FY. It made no real difference to everyday life apart from making it far easier to buy a block of land and get a new house built. That was something that we were always going to do, and the decision to go ahead was made well before that particularly lucrative year, so I guess the extra money went into that.

The resuslt was a significantly smaller mortgage.

If next FY I happened to earn 30% more than this FY, and it was spread evenly throughout the year, I would (a) increase my loan repayments and (b) increase my auto payments into Ubank (my 'mojo' account). It is absolutely true that one tends to spend what they earn, so to maximise the benefit of a higher income, more money should be committed from it to reduce debt and save or invest. For me, investments in shares are normally made with lump sums that come by every now and then. If the 30% increase happened to come in one lump, then yeah, I'd buy a stack of blue chips and take a large lump off the loan, then continue to live normally.

 

[Julia]

I get the analogy. I don’t think however, that status and envy is everybody’s motivation.

I don't think so either.

I'm sure many people are motivated as Waimate suggests, but to have such motivation as the driving force in your life must be ultimately frustrating and disappointing unless you're the richest person in the world.

Why not instead, if you have to compare yourself with someone, make that comparison with people on really low incomes, struggling to pay rent and with no hope of ever owning even the most modest family home.

I volunteered in the welfare sector for many years and came home after every session profoundly grateful for my own situation.

It is absolutely true that one tends to spend what they earn,

I don't think that's true for everyone at all. I've never done that and don't actually know anyone who has. No one would own property if everyone spent what they earned.
Your last paragraph makes clear that you yourself don't spend all you earn.

 

[Eager]

I don't think that's true for everyone at all. I've never done that and don't actually know anyone who has. No one would own property if everyone spent what they earned.
Your last paragraph makes clear that you yourself don't spend all you earn.

Ahh, yep, ok, think of it this way: I am positive that you would find that almost everyone that earned $130k per year, would not save any more money in their everyday accounts than those on $100k per year. They would spend it on things such as higher mortgage repayments etc. On a discretionary level it makes the difference between a 4 star resort and a cabin in a caravan park for your holiday, a new car evey 4 years instead of 7, or maybe wine in a bottle instead of in a cask. At the end of the day (or that FY lol) the people on $130k will still feel as broke as the ones on $100k because there is no discretionary income left over!

 

[waimate01]

Are you talking about yourself – are you saying you are motivated by envy and status even though you know it will not bring you happiness or are you saying you have no interest in achieving financial goals because you don’t think they are worth it? Or were you just posting a second hand stereotypical analogy - one which I think does not sum everybody up.

No, that's not my motivation at all - just a comment on the ultimate futility of thinking that happiness comes from keeping up with the Joneses. I care not what the Joneses are doing. The car parked in their driveway in not an insight into their souls (nor even a statement on whether they own said car)

Financial goals are worth it, but only to the extent that they are an enabler, not an end in themselves.

 

[Tyler Durden]

Just so. Human nature is such that we compare ourselves to people "across and slightly up", never to our peers. We and all our friends have w, so we set ourselves the goal of x. When we attain x, we do not compare ourselves to those people with w and feel good to count ourselves to be among those with x, but instead we compare ourselves to the people with y. And so it goes on.

This is human nature and spurs us to quest ever onward. But it is also a source of unhappiness.

One of the reasons why money does not bring happiness is that once we attain a newly elevated financial status, we rapidly "re-base" and this becomes the new normal, and our happiness quickly returns to whatever it was before. The exception to this involves covering-off the true necessities - food, shelter, etc.

You see this with boating. Some blokes always want a bigger boat. There's nothing wrong with a bigger boat, that's for sure, but I always say that no matter what boat you have, there'll always be someone with a bigger boat than yours and always someone with a smaller boat than yours. And this is universally true, except for two blokes in the whole world. And of those two blokes, I guarantee the guy with the very smallest boat in the world is happier than the guy with the very largest. So we should all just be happy to have any sort of boat at all *

(* this is either an analogy, or actually about boats)

I suppose another way of looking at it is to look at how we treat banks profits. A bank may announce an annual profit of $50b for one year. The next year they announce their annual profit is again $50b.

The market usually wonders "why the hell didn't it increase?" Imagine if the bank said "We thought $50b was pretty good, so we just decided to settle for it again".

Also, thanks tech/a.

 

[tech/a]

Tech/a

You mention rent on property but not dividends on shares as a source of passive income. Why one and not the other?

Waimate01

I don’t think your boat analogy describes everybody’s motivation. Is it you motivation?

Dividends would be considered if I kept the shares Lon enough.

 

[wayneL]

Passive income...Dividends...

...plus one can make extra income via options at conservatively appropriate points, perhaps doubling the dividend (perhaps less perhaps even more).

 

[Smurf1976]

On a discretionary level it makes the difference between a 4 star resort and a cabin in a caravan park for your holiday, a new car evey 4 years instead of 7, or maybe wine in a bottle instead of in a cask. At the end of the day (or that FY lol) the people on $130k will still feel as broke as the ones on $100k because there is no discretionary income left over!

I earn over $130K after the various "temporary" things are included (no guarantee this level of income will continue however since my base pay is significantly less) but won't be buying new cars or expensive wine anytime soon. I like the car I have, partly because of what it doesn't say about me, and I don't like wine anyway. According to the insurance company, the car's worth $4300 - fine with me since it's running just fine.

Dividend paying stocks are a big part of my long term strategy. Accumulate capital, wait for a market slump, buy shares in good companies at a discount and end up locking in decent % dividends on the original investment and virtually certain capital growth (as the market rebounds) as well. The key to that strategy is patience.

But I take your point. Most people, if they double their income, will still end up broke because they'll simply ramp up their spending. Personally, I just don't see the value in buying a new phone every 6 months or flying business class on a short domestic flight but others will disagree.

 

[Eager]

But I take your point. Most people, if they double their income, will still end up broke because they'll simply ramp up their spending. Personally, I just don't see the value in buying a new phone every 6 months or flying business class on a short domestic flight but others will disagree.

That's kind of what I was talking about.

When I was on a salary for 13 years, with inbuilt overtime, it ended up being dangerous territory for those that started the job during that time because to them it was ordinary earnings. Admittedly it was difficult to not justify some noice discretionary things during that period though.

Phones? I still use a Nokia 2100!

 

[Caveman]

What I'd do is put the extra 30% in a term deposit earning 6% or whatever,then towards the end of the 12 months go to the Union and tell them that your employer wants to reduce your salary by 30%.See if you can get the wage increase permanent

 

[Starcraftmazter]

In the past you've outlined how you find it pointless to spend money for the sake of it and I agree. But I'm interested in how easy or otherwise it is for any of us to say to ourselves: "OK, you have enough. Start thinking about spending a bit."

Spend it on what though....some people are just not that materialistic. Meanwhile there are infinite fun things to do with money, like starting all sorts of companies and investing heavily in scientific R&D.

No amount of money is ever enough, so my answer is invest all extra income.