Huge Salaries Are the Hoax That Love to Deceive You
Don’t be fooled.
I had just left my job with no new job to go to. I got talking to a friend of mine from my old company about financial freedom. We got onto the topic because I love to talk about money and bring it up whenever I can. I asked him what he thought he was going to do going forward in his career;
“What do you think you’ll do?” I ask.
“The way I see it, I’ll go one of three ways. 1. Chase the big money. 2. Get an opportunity here. 3. Find a startup to run, but the CTO and really drive it.” he responds.
“What do you mean by ‘chase the big money’?” I follow on.
This led the conversation down a rabbit hole about what it means to ‘chase the big money’. My friend, like many people, associates a big salary with being wealthy and successful.
But it’s a hoax.
Having a big salary sounds impressive, but getting paid £50,000, £100,000, £150,000 per year, whatever you think a big salary is, doesn’t make any difference. There’s one very big reason for this;
More Money, More Bills
In the UK, as I write this, if you earned £50,000, your take-home pay would be approximately £3,100 per month. Now let’s say you earned £60,000, a whopping 20% pay rise, £10,000 more. This sounds impressive, a cataclysmic jump in salary, a promotion, or a new role. But your take-home pay would be approximately £3,600 per month, £500 more. This doesn’t even take into account your increased student loan contributions or any reduction in state benefits. If you get a promotion at work or get a new job, that’s paying £10,000 extra, you’d feel pretty pleased with yourself. But faced with the reality of it being an extra £500 per month, you’d realize that it’s not really as life-changing as you thought and the elation would soon wear off.
Your number one biggest bill is Tax. Income tax on salaried work is the most crippling. The bigger your salary, the bigger your bill. We can’t avoid it. Despite this, recruiters don’t publish salary figures post-tax, they wouldn’t quite have the same pizazz. We believe the lie of the large number, despite us knowing the truth that a lot of it will be taken away.
Then consider the barrage of additional bills you will be persuaded to take on. As someone with a higher salary, you receive a constant assault of marketing to borrow more, to get a better car, a bigger home, a higher credit card limit. You’re persuaded to shop in more stylish clothing outlets, to drink at trendier bars, to eat at more up-market restaurants. The higher your salary, the more likely you are to part with it.
When my friend said ‘chase the big money’, what he meant was, ‘get a job paying a bigger salary’. But these are not the same thing. If you secure a high-paying job, you might be very satisfied and happy that you’ve made it, but the extra money it gives you each month won’t change your life very much. After-tax has been deducted, and with the inevitable increase in bills that come from having a high-paying job, you won’t be left with much more at all.
The true path to big money
About 5 years ago, I executed a property deal that made me £60,000 profit in just 3 months. The deal involved buying a flat, renovating it, and selling for a profit. It was hard work, but the reward was significant. Not only that but it was also done in my spare time whilst I was working a full-time job. It was a side hustle, one that was so lucrative I made more money from that than my main job. This taught me a valuable lesson about wealth building, that is Big Salary is not the same as Big Money.
Big money doesn’t come from a job. Big money comes from investing, buying appreciating assets, buying low, and selling high. It doesn’t come from working at a business; it comes from starting a business. Big salaries are the illusion that keeps us addicted to working for less than our worth.
There was recent outrage about a meager 1% pay raise for nurses. It’s considered an insult to offer them such an insulting pay raise, given all they have done for the country during the Covid-19 pandemic. The problem is, even if it was increased to 2%, 5%, even 10%, it would barely make any difference to the lives of the nurses. For a nurse earning £24,000 with a student loan, a meteoric pay rise of 10% would equate to just over £100 per month. That’s 5 large Domino’s pizzas.
How to stop being deceived
The good news is there’s a very easy way to stop yourself from being deceived by the dizzying heights of big salary numbers. If you’re considering a new job, working towards a promotion, or gunning down a higher salary figure, simply do the math and figure out what it would mean for you after tax and expenses. There are countless tax calculators online, but it’s also fairly simple to plug into a spreadsheet to see what different salary figures mean for your life. After you’ve done this, you can see the reality of what it means for you.
If your goal is financial freedom, salary does not help you achieve it. You may pay your bills, but as soon as you leave your job, you have lost your income. The goal of financial freedom is to achieve financial security without having to hold down a job. Income has to be passive so that you receive without having to actively trade your time for it.
Don’t be deceived by big headline salary figures. Work out what it would mean for your life. If it’s just an extra 5 large Domino’s pizzas each month, you might just realize the higher salary is not worth it after all.
