Throughout the entire Financial Independence, Debt Reduction, Early Retirement, and many other communities, reducing your expenses is heralded as the main step for becoming financially independent. I won’t say that this is completely wrong, because it’s not. However, cutting your monthly expenses is only a step in the right direction. Increasing your income is still a significant step in moving forward towards your goal for FI/RE.
Cutting Expenses
Typically, every month you receive a set amount of income, and you have a set amount of expenses. You likely have taken the time to start analyzing how to cut your expenses and reduce your lifestyle so that you stop looking the way you want to feel. (Looking rich vs being rich) I encourage everyone to continue looking for ways to reduce their expenses as these are small, quick wins for your monthly budget. By doing so, you get into the mindset of “I/We can do this!” That’s an awesome feeling isn’t it? I know it is for me.
By going through your monthly expenses, line by line, especially when you start this process really can give you an eye-opening view of where your money is going. Likely, most of you are spending too much money on going out to eat, buying the newest electronics as soon as they come out, and even spending too much on fuel for your vehicle because you are driving all the time to buy all these things. I want you to think through your expenses and start thinking about whether or not these are necessary expenses, or things that you purely WANT. Your WANTS should come AFTER your NEEDS. Think about that for a minute and process that. After you process that, start looking at cutting expenses that are unnecessary, or reducing the amount of costs you are paying. For some encouragement, I recommend you read another blog post about the Financial Independence Way of Thinking. In that post I discuss many different facets about reducing your expenses in meaningful ways and getting to a point where you are less stressed and can stop living paycheck to paycheck.
An excellent tool that I recommend you and your significant other use is YNAB (aka You Need A Budget). YNAB is a web software that connects to your bank accounts, credit card accounts, and loan accounts. It enables you to keep an extremely detailed view of what your expenses are, and then categorizing them. By utilizing these categories you will start to see where your money is going every month; from there, you can start reducing your costs one-by-one.
Increasing Your Income
In another post, The Financial Independence Way of Thinking, I wrote a comment that you should continuously look to improve your circumstances, and don’t stop looking. The idea is that once you find a way, either through promotions, pay raises, or through finding a different job altogether, you don’t stop there. Don’t get me wrong, it’s excellent that you made the move to increase your pay by a few dollars an hour! That’s not something to scoff at. For every $1 per hour more that you make, you increase your weekly income by $40, your bi-weekly income by $80, monthly income by $173ish, and annual income by $2,080*.
So increasing your hourly pay by $5 is over $10,000. That’s certainly not nothing! That’s excellent. However, if that means that you went from making $18 an hour to $23 an hour, you went from $31,000 a year to over $41,000 in a year. That’s awesome! I recommend that if you changed jobs in that move, you stick there for a few months. I have anecdotal experience where jumping ship too quickly can negatively impact your future job hiring as employers will assume you just want to jump ship as soon as possible once a better pay comes available. Once you have sat there for a few months, go ahead and start looking for a higher paying job again. The higher the pay, the more responsibilities on your plate, the more work you are expected to produce. Overall, I say it’s worth looking for that higher paying job. While I was able to jump up nearly $15,000 in one job change, I still am not satisfied with where I am at. I recognize that I need more skills and experience before I can reasonably make the jump to a higher paying salary.
So What’s Best For You?
I certainly can’t tell you what’s best for you. Only you can do that. However, I certainly suggest that you take the time to inspect your budget, attempt to reduce your costs as is reasonable. (don’t forget to leave yourself some entertainment budget as you don’t want to get bored and go spending more money.) While you are looking at your budget and refactoring it to be more reasonable for you, continue to look at what jobs are available to you in your local area at every employer you can find. See what’s out there. Keep applying. Once you feel that you have exhausted your local options, look elsewhere, look for remote positions where you can work from home on your computer. Maybe you look for positions that are in a completely different field but you are confident you have the experience to obtain! Don’t rule out that option.
Let me know in the comments what progress you are making towards reducing your expenses and increasing your income. How is that going for you? Are you making significant progress forward? Do you need some encouragement?
* I used the site https://www.free-online-calculator-use.com/pay-raise-calculator.html with Current Pay at $20, time period of hourly, pay raise type: dollar, pay raise factor: $1, number of hours: 40, and the rest is up to you. Calculate and you should get the rough numbers from above.
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