Don’t Let Slow Wage Growth Derail Financial Freedom

When I worked in the hotel industry our management liked to use a phrase called ‘manage the gap’. The goal was to maintain a 2 percent gap between revenue growth and expense growth. So if expenses were forecast to rise by 3 percent, we’d want to see revenues grow by 5 percent. Managing the gap meant keeping a close eye on costs so that we could quickly respond to changes in the market and raise prices if necessary.

Managing the gap isn’t as effective a strategy when dealing with our personal finances. Most of us don’t control our own destiny when it comes to our wages and so we can’t simply ask for a raise when we notice our household expenses starting to increase.

In fact, stagnant wages have become more commonplace in today’s economic climate. Since 2008, many workers who are not represented by a union or negotiating body have had their salaries frozen or even rolled back. The lucky few have seen modest annual cost of living increases at best.

Slow Wage Growth Derail Financial Freedom

Slow Wage Growth (Or No Wage Growth)

One of the biggest obstacles in my journey toward financial freedom is that my salary has increased just 16.8 percent over the last nine years. That averages out to less than 2 percent a year; barely keeping pace with inflation and certainly not enough to keep up with the needs of a growing family.

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The environment won’t get better any time soon. The province – even with a public sector friendly government in place – still faces a stiff economic challenge and massive deficits ahead. They recommend continuing what’s now been a four-year wage freeze for all non-bargaining staff, putting a halt on further increases until September 30, 2019.

Despite all of this, I still have my eye on financial independence and I’m still on track to reach this milestone by the time I turn 45.

I’ve recently changed roles within my organization, the results of which should lead to a reclassification of my position and a chance to earn a promotion. Change is slow, however, as I was reminded by this quote from an article in The New Yorker:

“I don’t work in a start-up. I work in a brick-and-mortar university, one of the most institutionally conservative workplaces in the world outside of North Korea.”

Side Hustle to Prosperity

In the meantime I’ve ramped-up efforts on my side business – adding another freelance writing contract, and working to build more advertising partnerships. The extra hustle has paid off so far this year with revenue increasing by 25 percent.

My wife even got in on the act, using websites like Kijiji and Facebook’s local Swap & Buy groups to sell a bunch of our old baby stuff. She not only got rid of a bunch of items we’ll never use again, but she earned $700 in the process!

On the expense side we monitor our daily spending and save money where we can. Smart-phone apps like Flipp and Checkout 51 help us save a few bucks on our groceries. A regular review of our subscriptions and recurring bills keeps our monthly payments in check.

The big-ticket items are where we can really save money. We paid off our car last fall and freed-up $800+ per month – money we directed towards our savings goals to help inch us closer to financial independence. Rather than buying a new vehicle right away we’ll keep our two payment-free cars on the road for the next several years, allowing us to build up our savings even faster.

Our mortgage comes up for renewal in the fall and I expect to get another great deal under 3 percent. It has been seven years and we still love our house enough to call it our forever home. Staying in this home and resisting the urge to move and upgrade will save us tens of thousands of dollars in moving expenses and realtor fees.

Final thoughts

When I project what our finances will look like in the next five-to-10 years I make sure to be ultra-conservative with the numbers, keeping my salary and expenses in-line with inflation. If I get a promotion, or regular salary increases return to the 3-4 percent a year range, I’ll simply treat that as a bonus to help reach our goals faster.

Slow wage growth won’t derail our plans for financial freedom. By finding creative ways to earn more money and keeping our expenses from getting out of hand, we can continue marching along towards financial independence.

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  1. Braden B on August 1, 2018 at 8:49 am

    How old are you?

    • Robb Engen on August 1, 2018 at 10:55 am

      Hi Braden, I’ll be 39 in a week.

  2. Esther V on August 1, 2018 at 5:24 pm

    Yes so agree – we have been able to stay within in our means these last several years, while my husband has had no wage increase. It’s encouraging – because we just bought another car with cash. We are conservative but it’s working out for us 🙂

  3. woodrone on August 3, 2018 at 10:57 am

    I don’t buy this low wage growth environment and I think unions have been largely ineffective with wage growth, (the weaker employees have been dragging down the high value employees). I keep seeing “successful” negotiations that end with wage growth less than inflation, meanwhile those that are fighting independently can get real wage growth. In the last 8 years I’ve had only one raise less than 2%, and I very shortly after that left that company. Do you ever look for work elsewhere or have any desire to? the fastest way to grow your salary is have a competing offer or switch to a company that values your work at a higher salary. It’s easy to be comfortable but It’s so easy to get a 15-20% raise just by switching to a different company or line of work. I’m sure you like your job so you don’t feel the pressure, but it’s also pretty fun to try new things and learn new jobs/careers.

    Nonetheless, I’m sure you find solace in that you are still getting a raise every year from your investments snowballing.

    • Robb Engen on August 3, 2018 at 11:57 am

      Hi woodrone, you’re absolutely right – I could look for more money elsewhere. I’m lucky in that I’ve been able to increase my earnings through side hustles, which has allowed me to still reach my lofty financial goals.

      Right now I feel caught in the middle of continuing to do what I’m doing now, searching for a new day job (at the risk of having less time for the side hustle) or going full time freelancer with my online business.

      I hear you about fighting independently for a wage boost and that’s what I’m doing now. If those negotiations go nowhere then I’ll have to weigh the other two options.

      • Mike Abraham on May 1, 2019 at 7:50 pm

        As a federal public servant in a technical role I can only wish for 2% average increase. We are lucky to get 1% if ever that, and yes – unions who lump us all in it together are responsible for getting more for the low producers and less for the high producers.

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