Turning 30 sucks. You don’t bounce back as quickly after injuries or hangovers, wrinkles start setting in, Tinder charges you double just to find a date, health insurance costs more, and you only have five more years before your earnings level off and stall permanently.
A new study by the Federal Reserve of New York found that nearly all of American men’s income growth occurs before age 35. Women were not included in the study, but given the number of women who leave the workforce (whether temporarily or permanently) in their late 20s and early 30s to care for children, logic would suggest that this trend applies to the ladies as well.
Perhaps predictably, the pattern held true for the bottom 90% of the population, but the top 10% of earners buck this trend and their incomes continue to rise after age 35, rather than flatten or fall. But even most of the wealthy see their edge disappear with age. By age 45, only the top 2% of earners can expect to ever make more money than they do currently, and the rest of us actually see a slight decline in earning power over the next ten years.
At the bottom of the income spectrum, the news is even worse: the bottom 20% of earners actually see their incomes decline between the ages of 25-55. When they retire, they are earning less money than they did in their mid-20s.
Is there any hope?
If you want to get rich, here are a few ideas.
First, if you’re young, you can make significant strides in your investments, by skipping the fancy car and instead investing a huge percentage of your income. With 30-40 years to compound and grow, investments in stocks and real estate will pay massive returns. Between dividends from stocks and rents from real estate, investment income will increase on its own over the course of your career, virtually guaranteeing higher income even if your salary stays constant. Consider that mortgages on your home and investment properties will also be paid off after 15-30 years, which will also boost your cash flow and therefore your income (assuming you can resist the urge to refinance).
Being young, you can also position yourself as a mover and shaker in your career, and work your way to higher incomes faster. Between negotiating aggressive pay increases and leapfrogging employers to maximize your income, do what you can to position yourself in a higher income bracket sooner rather than later. Later may be too late.
Over 35? All is not lost, although time is no longer an ally. Aside from the obvious career maneuvering to boost your income, it is more important than ever that you let go of the flashy “keeping up with the Joneses” mentality that plagued you in your 20s. If you want to boost both your income and your wealth, you need to create a virtuous cycle in your own finances, which is difficult at first, but is self-reinforcing and gets easier over time.
Income from dividends, bonds and rental properties can go towards buying more investments, or paying down debts (for example mortgages). To use an easy example, let’s say over the course of a few years you acquire five rental properties, each with a mortgage and a monthly cash flow of $200. Congratulations, you’ve given yourself a $12,000 raise, and you can never be fired. With that extra $1,000/month, you could buy new gadgets for your kitchen… or you could put it all towards paying off one of your mortgages. When that mortgage is paid off, you suddenly have $1,500 in cash flow each month, which you can use to pay down the next mortgage even faster. Then it will be $2,000/month in cash flow, and so on, as a virtuous cycle of income growth that has nothing to do with your career.
There are also tax advantages that you can use for any of these investments, which lower your tax bill and effectively creates a raise. Between IRAs, 401(k)s and the myriad tax advantages to real estate investments, you can cut your tax bill in half, all while increasing your future income.
As a final word for those looking to grow rich at any age, remember that the wealthiest people in America are entrepreneurs, not doctors or lawyers. Starting a business (including a real estate investment business) is how anyone, at any age, can go from being dependent on an employer to being fulfilled and financially independent.
Don’t want to be in the trend of flat incomes after age 35? Then make sure you become an outlier, by going about becoming wealthy by thinking, acting and prioritizing your finances differently than the rest of the pack.