Friday, July 27, 2018

Starting Salary

One obstacle to gaining financial freedom is that the salaries of skilled labour go up with time. Additional skills, more experience, better understanding of the politics of the organisation you are in, and more Social Capital help people climb 'the ladder'. That should be an advantage. If you get to a stage where you are comfortable with the level of spending you are at, then anything above that should be money you can invest.

Except we tend to keep climbing. The reference point isn't our Starting Salary. The reference isn't the Median Income of people in the country people live. The reference point isn't an absolute number based on the type of life we aspire to live. Working is expensive. You have to pay for your commute. You need work clothes. There are things you end up having to pay other people to do, because you don't have the time or knowledge (having specialised). You have to live close to where the work is. So does everybody else, and so the price of just putting a roof over your head goes up.

We marry our spending to our salary, and the reference point is a better life. We end up wanting to replace our Ending Salary. This is an unhappy marriage, which commits people to living hand-to-mouth even if there hands and mouths are huge. A person earning and spending $1million a week will be in big trouble if they stop earning.

Hans Rosling talks in 'Factfulness' of being wary of lonely numbers. Whatever you earn, out of context, will never be enough. Numbers always need friendly questions. Your Starting Salary is obviously a very useful number because you know what it was like to live on that. But you likely also had fewer responsibilities, so you-now and you-then are not the same. No two situations ever are. Another useful comparison is the Median Income of the country you live in, and of the world. 

Again, context is everything. Different countries have different costs, and estimates of income are complicated by how many members there are in the household and different societal expectations. There is a 'Community Tax' in costs you can't avoid if you want to be part of a certain group of people.

All that wiggling aside, the Median Global Income was about $10,000 per household, and around $3,000 per person (Gallup, 2013). Yes, that is per year. Half of the world's population spend less than that (about £2,300 or R40,000) a year. Perspective.

The Median Household Disposable Income in the United Kingdom in 2017 was £27,300 (around USD 36,000). The Median Household Disposable Income in South Africa is around USD 10,872 (around ZAR 140,000).

More is a dangerous motivating factor. It is useful to think of questions and goals that divorce your income from your spending. Often we can learn more about financial control from those making do on much less than us. If you are reading this, there are probably a lot of them. We can also learn a lot from what really matters to us. Just repeatedly asking the question, 'why is this important?' can identify our real drivers. Then work towards those goals. Not a carrot on a stick you can never reach.

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