Buy More Income

I saw an article on Yahoo! Finance the other day about consumers facing inflation while their wages stagnate, entitled, Consumers are squeezed as inflation outpaces wages. One line in the opening paragraphs caught my eye:

"WASHINGTON (AP) -- The spending power of families is being squeezed, government data showed Friday, highlighting doubts about consumers' ability to drive the economic rebound.

Workers saw their inflation-adjusted weekly wages fall 1.6 percent last year -- the sharpest drop since 1990 -- even as consumer prices rose only modestly. Slack pay and scarce job growth, along with tight credit and a rising savings rate, are holding back spending. That's hindering the recovery." [emphasis added]

This is precisely why I invest to create passive income streams. My job does not have "slack pay," fortunately (I get frequent raises and I have a rockin' commission schedule), but regardless I continually put extra cash into things that will pay me.

My doing so may or may not factor into the national savings rate (I've never bothered to look at how exactly that is defined), but I think part of the problem here is captured by that being cited as a negative. It can be true that lots of people simply sitting on growing cash piles is bad, but what if people are buying income producing assets and spending the income those assets produce? These sorts of things do not produce nearly as much cash as what goes into them initially, so there perhaps would not be as much personal consumption going on in the near term, but over time they frequently will. It's almost like having your cake and eating it to: increasing net worth and increasing personal consumption while not necessarily working more or for higher wages.

Another aspect to this is that, absent raises, one can buy his or her own "raises." All a person needs to do is spend less than what he or she makes, and that surplus amount can be used to buy more income. Rinse, repeat, and eventually the amounts become considerable, leading to an increasing quality of life.

Last year I grew the income I receive from stocks and bonds by 195%, and this year I've already increased income from those sources by 2.56%. I did it with extra cash left over in my budget, bonuses and commissions from work, and by reinvesting any capital gains I earned from positions I sold. Even though far more money has gone into my investments than has come back out at this point, my discretionary income is up and I have gradually increased my personal consumption. Little by little that will lead to new jobs for other people, with which they could turn around and do the same thing I'm doing. If more of us were to pursue income producing assets more than toys and liabilities, then perhaps stories like the one I linked to above wouldn't be written anymore.