How to Get a Big Pay Raise Every Year

Growth is an impor­tant part of invest­ing, right? Do bet­ter this year than last year. Better next year than this year. At work, you think in terms of a big pay raise to mea­sure doing bet­ter year over year. Why think dif­fer­ent­ly about invest­ing?

It’s com­mon to focus on net worth. In my expe­ri­ence it’s what every bank and finan­cial insti­tu­tion shows cus­tomers on month­ly state­ments and annu­al sum­maries when try­ing to talk about how their invest­ments have per­formed.

What if we used a dif­fer­ent mea­sure? What if we looked at invest­ment income?

In fact, even more impor­tant­ly than invest­ment income, let’s look at invest­ment income growth (with the goal being to get a big pay raise each year).

Why is get­ting a big pay raise impor­tant? Inflation.

Inflation is a main rea­son things cost more year after year. Even at low rates of infla­tion, as they are now, infla­tion com­pounds relent­less­ly over time.

Your New Investment Goal

Simply put, we’d love it if our income grew faster than the ris­ing costs of the things we buy.

And, our invest­ment goal should sim­ply be to cre­ate an an income for retire­ment that grows faster than infla­tion.

In the Elephant’s Paycheck Blueprint, I present a blue­print based on div­i­dend invest­ing as a way to cre­ate an addi­tion pay­check. Specifically, I rec­om­mend invest­ing in div­i­dend aris­to­crats. Dividend aris­to­crats are a set of com­pa­nies that have increased their div­i­dends each year for longer than the past 25 con­sec­u­tive years. (There are a few oth­er qual­i­fi­ca­tions to be an aris­to­crat, but they’re irrel­e­vant for the moment.)

You invest in these div­i­dend aris­to­crats that have a his­to­ry of increas­ing div­i­dends year-after-year. While there is no guar­an­tee that they increase div­i­dends faster than infla­tion, they often/usually do. Each com­pa­ny you own that increas­es their div­i­dend gives you big pay raise with each increase.

Next, instead of tak­ing the div­i­dends and spend­ing them, you rein­vest those div­i­dends. Each rein­vest­ment? Another big pay raise.

Reinvesting the div­i­dends gives you four addi­tion­al rais­es each year for each com­pa­ny you own. Five rais­es a year total for each com­pa­ny you own ((Not only is this a sound invest­ing strat­e­gy, it sure is fun to get so many rais­es!)).

The com­pound­ing pow­er of five rais­es a year (per com­pa­ny you own) is pret­ty dra­mat­ic. In our sam­ple port­fo­lio for the 401K rollover, the first 11 months saw an 11.5% raise.

Let’s Put Your Elephant’s Big Pay Raise in Context

Did you get an 11.5% raise at your job?

And, it gets bet­ter. At the same time, we can con­ser­v­a­tive­ly project an addi­tion­al 11% raise over the next 12 months.

These are the kinds of results you can achieve with your own Elephant’s Paycheck Blueprint, pro­vid­ed that you’re will­ing to change your per­spec­tive and focus (at least in part) on income as well as on net worth.