Your Income Should Increase 10% Annually: Or You Risk Quickly Falling Behind

When did our salaries become the deciding factor in our lifestyles? Why should our bosses dictate how we live our lives?

Americans were an entrepreneur class of businesspeople, farmers, and traders. As we moved into the industry age, we began depending on our employers to “facilitate” our lifestyles.

However, wages can’t keep up with cost-of-living increases. You’ll be hard-pressed to find a job that increases its salaries by 10% annually. This is leading to the wealth gap across the nation.

The Illusion of Freedom

But we can fight back. In 2024, we have a massive toolbox of ways to increase our income and, by extension, our quality of life. However, it won’t be easy; we’ll have to learn the ropes. But we can achieve anything with the right mindset.

The rule of 10%. You’ll have to increase your income by 10% annually to outpace cost-of-living increases. Where did this rule come from? I made it up out of thin air.

I have spent the last five years studying the creation of money, how money works, and where money goes. I have started a business, traded options, bought dividend stocks, rented rooms, and purchased rental properties.

I have learned that the people who focus intently on their finances have the best financial results. It is no accident that the rich keep getting richer. 

Let’s examine the 10% rule. We know that the inflation rate is 3%, historically. Therefore, the minimum our income can increase by 3%.

Earning Your First Dollar in Dividend Income

When I was in the military, we would receive annual pay raises of roughly 2-3%. These raises do add up over the years.

I came into the military in 1999. In that year, a Master Gunnery Sergeant (E-9) with 24 years of experience made $3,507 per month. In 2023, I retired as an E-9 making $7,673 monthly. This gives E-9s a compound annual growth rate of 3.32%.

Our handy dandy inflation calculator shows that $3,507 in 1999 equals $6,476 in 2023. So, E-9 pay over the years outpaced inflation.

Unfortunately, there are more elements to the cost of living than inflation. The other parts of the cost-of-living increases are companies and governments.

What causes cost-of-living increases? We know that inflation is a part of life; however, corporations and governments can outpace inflation and cause higher costs.

Financial Freedom: The True American Dream

Let’s start with companies. Companies only survive long-term if they are profitable. Investors only invest in companies because they expect a return on investment.

Therefore, as inflation hits the company’s bottom line through higher input and salary costs, they must raise rates even higher. However, they also must add additional revenue spending to dividends.

So, a company like Walmart (WMT) has to factor in inflation costs and the cost of paying an increasing dividend to investors like me. Let’s say these profit costs add 4% to our annual cost of living.

Governments are not as efficient as corporations because they don’t factor in input costs. To the government, the money just appears. If the money dries up, they simply ask for more.

Retiring on Dividends 104

So as end users, we see prices of car registration, property taxes, insurance, sales tax, and more increase annually. 

The government will add more people to solve the problem instead of becoming more efficient. Trust me; I worked in the government for 24 years. Let’s say that a wasteful government accounts for a 3% annual increase in costs of living expenses.

What can we do to combat the higher cost of living? I have broken down my 10% annual cost of living increase into inflation (3%), corporation (4%), and government (3%). This is a lot to take in, but we must fight back.

The only way to fight back is to arm yourself with “the information.” The information states that we must make money in our sleep, or we will not beat the cost-of-living increases.

Options Trading in Your 50s

Let’s take a deep dive into a typical family that brings in $100,000 annually. At the beginning of the year, the family has to assess how much money they need to make. In this case, they need to make $110,000 ($100,000 x 1.1).

The family knows their job will give them a 3% raise at the start of the year, giving them $3,000 in additional income. They now need to find $7,000.

The tricky part for most Americans is that they don’t know how to make money outside their 9-5 job. This lack of financial awareness is how they fall behind very quickly against the rich.

The key to earning 10% more is not working more but having assets that pay you more. Assets are the key, but you must obtain them first.

Retiring on Dividends 103

Assets vs. cost of living. The first thing that every American should understand is that they have assets. Every American has assets they can convert into cold-hard cash, whether it is their brain, home, car, or work ethic.

For example, my wife and I have a roommate that pays us $1,000 per month. Renting a room is the highest return on investment a person can create for themselves. It’s called an infinite return.

However, renting a room and spending the money is not the goal. The idea is to rent a room, invest the money at a high return (10%), and reinvest that money.

Returning to our example family, let’s say they get a roommate for $1,000 monthly. This puts them at $115,000 for year one.

Options Trading in Your 40s

The family invests the additional $15,000 into a closed-end fund that pays them 10% annually. This is an extra $1,500 of annual income going into next year.

By staying on a tight budget, keeping their roommates, and investing in dividends, the family builds an investment portfolio of $100,000. They keep reinvesting the 10% annual return to grow this portfolio.

Over the years, the family has built a $50,000 options trading portfolio that generates 20% annual returns. They invest the cash flow into their closed-end fund account.

The family starts a YouTube channel tracking their annual budget adventure. The income from the YouTube channel grows 10% annually.

The family purchases an ATM that pays them $1,000 monthly, which they funnel into their closed-end fund account.

Bonding with Bonds

The magic of income. As you can see, the family uses multiple income streams to grow their employment and passive income over 10% annually. 

The key is that they never sit still because there is always a new game to play. The goal is to funnel this money into the high-yield dividend account that generates an 8-10% annual return.

Do these methods work? Of course, they work. My wife and I have been using these investment strategies for over five years. In October 2020, we earned $60 in dividends. In October 2024, we earned $2,207. That’s an annual compound annual growth rate of 146%.

Asset-Limited, Income Constrained, But Employed

Conclusion. Of course, this rate is unsustainable, but I can guarantee it will always be over 10% annually. My wife and I use multiple streams of income to keep growing our passive income.

Did I mention that we are retired? We retired at ages 42 (me) and 39 (her). Even though we don’t have a major job, our passive income continues to grow quickly and ahead of the cost of living.

These techniques may sound foreign because nobody taught them to you. This is how the rich keep getting richer. They have rental properties where they can raise rents to outpace the cost of living.

While you have to ask your boss for a raise, they simply increase the annual rent on a tenant. I do the same when needed. Do you want to be the one raising the rent or the person getting the rent raised?

You are at the point where you must decide how you want your life to look. You can take control by using your current assets (renting a room or car) to build more assets (dividend portfolio). Now is the time because the cost of living will be even higher next year. Good Luck!

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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.  I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing