One of the financial podcasts I listen to, Stacking Benjamins, had an interesting topic on their Friday show. A financial article/letter was written in which the person took the task the concept of getting to FIRE by cutting expenses alone. Their article went on to discuss the income of the bottom two quintiles of income in the US ($11K and $31K average income) – how can someone cut expenses and save 30%+ if their income is so low, they are barely getting by (or is many cases, not getting by at all). You just can’t cut enough to get to FIRE!
The show’s guests and host generally agreed, and emphasized that they had been pushing this idea before. Only someone making significant amounts of salary can afford to spend $5 on a latte or purchase avocado toast. Their belief was that one could only cut expenses so much, and the key to further improving your financial life is to increase your earnings. As you increase your earnings, you try very hard not to correspondingly increase your expenses. Keep your expenses in line with what you spent before, and save the increases.
Some methods for this include:
- Put 1% of your income into your 401K when you first get hired, and then every pay raise, put at least an additional 1% of your pay into your 401K. By the time you are 30, you’ll be putting 10%+ away, and will hardly miss it.
- Setting aside automatic withdrawals to your emergency fund, and once that is fully funded, just shift that money to automatically go into an investment fund (or Roth IRA, etc.)
- If you get any sort of bonus, put at least half of it away into investments/savings
Yet, how do you go about increasing your income up from the annual pay raises (typically around 3%)? The key is that you have to be able to provide more value than your current work – either to your existing employer, or to a new employer. The other way is to expand your value, on your own (entrepreneur work with a side-hustle). The idea is that you should look to continually improve yourself so that you can make additional money. To improve yourself, you must dedicate yourself to continually learning new skills and improved knowledge.
New skills/knowledge expands your ability and usefulness. You can now do things beyond your current job function, you can teach others these new skills, and you have increased the flexibility of your boss (or your own situation). This makes it less likely you will be the one chosen to be let go in case of a downturn (you can do multiple jobs) and enhances the ways you can make money in your entrepreneurial endeavors.
So dedicate yourself to constantly learning new things. With the internet, YouTube, articles, books, etc. there is a wide range of ways to learn and apply new skills. I personally am working on a side hustle (TKD Woodworking) not only to make additional money, but to learn new skills (not just woodworking, but business, marketing, and website design skills). You should always be pushing your self to grow – otherwise you may find yourself spending too much time sitting around in front of the TV or online gaming. You have so much potential, that it’s a shame to waste it.
So what are you learning about lately?
Mr. 39 Months