The Best Wealth-Building Technique of All Time! (Part 2)
Image sourced by Andrew Neel @andrewtneel
Every once in a while, a wealth-building strategy comes along and withstands the test of time – in this case, for centuries!
When I was 12 years old, I entered the 7th grade. That was Junior High School back then. My Dad, who was an accountant, gave me my allowance for the entire semester in one lump sum!
At the beginning of the Fall semester, he handed me $225 in cash. To say the least. . .
I was Terrified!
He told me, “You have to buy lunch at school” and cover a few other things which escape me now after so many years. It may have been entertainment.
“And if you run out of money, you can always come back and ask me for more money.”
No way I wanted to do that!
That’s when I learned how to budget my money – make a personal budget.
Today, we’re going to explore the often overlooked wealth-building technique:
Expected Value!
Investopedia defines Expected Value as the “expected value of a stock or other investment at some time in the future.”
As an investor, we would compare an investment’s expected value with the investment’s current market value (price) at which we could buy or sell the investment today.
For example. . .
Suppose Apple common stock is trading at $178 per share and based on your investment analysis, you determine that Apple common stock has an expected value of $250.
You might decide to purchase Apple common stock or purchase more Apple common stock.
If on the other hand, based on your investment analysis you determine that Apple common stock has an expected value of $194, you might decide to hold your stock (not sell); or you might sell (liquidate) some or all of your stock (holdings).
But what does that really mean for us in terms of personal budgeting?
For purposes of this discussion, the investment is You!
In short, Your expected value drives, well everything. Or should.
In effect, each of us has a certain amount of money we can reasonably look (expect) to earn in our lifetime – lifetime earnings.
BUT, YOU ABSOLUTELY CAN INCREASE YOUR EXPECTED VALUE!
Read On!
Our earnings are based on:
Where we are today
What skills (skill set) we have right now
Our current level of education and training
The job we hold, the compensation for the role we have and the value (output) we produceHow the company pays us – base salary, overtime pay, bonus, commissions, Social Security, employee benefits (healthcare insurance, 401(k) plan or 403(b) plan, employer match, paid vacation)
Based on these factors, in general, cash flow, saving money, achieving our financial plan and building wealth depends on how much we earn and how much we spend – the lifestyle you create and live.
The key to creating lifetime wealth is to determine your Lifetime Expected Value.
Estimate your Lifetime Expected Value – your likely lifetime earnings.
Once you establish your expected value, the key is to Structure and Organize your lifestyle, living expenses and personal spending so it’s less than Your expected value.
Regarding pretax and after-tax money, we’ll explore this concept in future articles and blog posts.
The problem, to state the obvious, is that it’s a whole bunch easier to spend than it is to be disciplined about what we can or should spend.
BUT, YOU ABSOLUTELY CAN INCREASE YOUR EXPECTED VALUE!
No matter where you stand today or where you are starting from.
To increase your expected value:
Become more educated! Build your skills!
Get an advanced degree
Enroll in a skills development program at a local college or university, that will help you increase your income
Obtain a ‘Badge’ or certification that will help you increase your income
Switch jobs – join a new company – to get healthcare benefits or better healthcare benefits or retirement benefits, for example a 401(k) or 403(b) plan and an employer match
Meet with your career advisor to get realistic feedback and ideas on how you can improve your on the job performance
Find out if you can work more hours (overtime) – earn overtime pay
Find out whether you are eligible for a merit bonus or how you might become eligible for a merit bonus
Find out whether you can sell the company’s products and services and earn a bonus or commission (in addition to your salary)
I worked at one consulting firm that offered a bonus to any employee that brought in new clients
Management’s logic was that if they incentivized all the employees to bring in new business the owners were better off. And they would share the ‘pot’ by giving the employee a bonus. Maybe your company offers such a program
A number of employees jumped on this and earned nice extra income.
Review the job specifications for your current position and the position that’s one level up from your current position.
Analyze your current on the job performance against the job specifications. Model your on the job performance against the job specifications (job specs)
Meet with your supervisor or career mentor.
Ask for candid feedback about your performance and how you can improve.
Ask how you can add more value to your company (and therefore get a salary increase or raise)
Check your current expected value (compensation package) in the marketplace
Speak with your friends and colleagues in another company – NOT in your current company – about what you should get paid for your current position – what’s the market compensation (comp)
Now, some states have enacted legislation requiring disclosure of compensation (pay) for each position and level pay disclosure laws.
If your company does this, you should be able to obtain this data relatively easily.
If your company does not disclose this information, search online to see if you can obtain the compensation information for your position and level from a peer company in your Industry
Visit employment websites, for example, Indeed.com and Monster.com, to see what other organizations in your Industry are paying employees at your level with your education, skill set and experience
If your current compensation is substantially below the market, consider speaking with your supervisors to get feedback and lock in higher pay.
Or possibly, consider moving to a company across the street
Be Very Careful with this because you may find yourself out of a job!
One of my friends tried this and discovered that his employer was more than happy if he moved on to another company. Ouch!
If you want to pursue this path, make sure you have lined up another job
Discover whether you can perform additional services – take on more responsibility – without reducing your performance quality (output) for your standing responsibilities and job duties.
Where you stand today does Not have to determine your future or your expected value.
Today does Not have to be the last stop!
Jump on these action steps to increase your Lifetime Expected Value to build lifetime wealth.
I did. After I got divorced in 2007, I was out of work or underemployed. When the dust settled, I took stock of myself and put my track shoes on. And that made All the Difference in the World!
If I can do it, You Can Too!
And while you’re increasing your expected value, to Increase Your Cash Flow, Save More Money on Groceries, Every Day – click here.
See you next week.
Arthur V.
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