The economic rebound over the past couple years has been a funny thing for Mrs. PoP and I.
It’s been great to see our friends (and us!) get better jobs, maybe buy a home, or make additional investments in their business. But it was accompanied by a feeling of uneasiness as well. Slowly but surely, the assets that we were investing in became more and more expensive to buy. Sure, we were making more money, but the assets that we were buying (mostly real estate at that time) weren’t nearly the value propositions that they had been just a couple years before.
If you have any money in the stock market these past two years, you can’t help but notice that stock prices have gone up at a pretty healthy rate. That’s great if you are in the maintenance or draw-down phases, but if you are still socking money away, then buying the same stock for more money than you paid last year doesn’t look enticing. For more information on PE ratios across different indexes, check this site out. Put simply, broad indexes, as an asset class, aren’t as inviting as they used to be.
The same goes for real estate prices; this article from the WSJ asks “Did You Miss Your Chance to Make a Real Estate Killing?” Mrs. PoP and I can pretty subjectively validate the gist of the piece. We bought our duplex for $50K and rented it for $1450 a month; now we would have to pay $100K (or even $120K is what equivalent ones are asking right now) for a similar unit, but rents have only gone up a hundred dollars or so in the past 2.5 years. In other words, you are paying 2x for the same dollar of rental income. Yeesh…
What To Do?
Growing your personal net worth is really a pretty simple game; there are only three rules to winning.
- Make good investment decisions,
- Minimize your expenses and,
- Maximize your income.
If your expenses have already been minimized over the past two years, and a booming economy is leading to expensive asset classes, maximizing your income by improving your skill set and getting promoted or taking a new position might be the best option. Luckily, that’s exactly what I’ve been concentrating on for the past few months…
A New Job
About a month ago, a possible promotion opened up at work and I was lucky enough to get the spot. There are no sure things in sales, but in general this position has two features that suit me (and Mrs. PoP!) well right now. The target income is about 30% higher than my previous position, and the leadership and team I’ll be working with fit my style very well as well.
The only possible downside is that an even larger portion of our income will come in lumps, maybe once or twice a year. But so what?
To paraphrase Charlie Munger, I would rather take a lumpy 20% ROI, than a smooth 5%. The added income should help us build up the cash reserves, more quickly.
So Now What?
Mrs PoP’s Take On The Lumpy Promotion
I know it seems like a pretty weird thing to say, but I really don’t mind how lumpy Mr. PoP’s pay gets. In fact, the lumpier it gets, the more we seem pretty determined to make sure we’re keeping expenses down (except for this month… you can see all the gory details in a couple weeks) so as to live largely off what I bring home from my (very non-lumpy) job. Mostly I’m just glad that Mr. PoP really seems to be enjoying the challenges of his new position.
Which of the three steps to winning the net worth game are you focusing on these days? Investment decisions? Minimizing expenses? Maximizing income?