Boost Your Savings Rate by Boosting Income
I spend a lot of time advocating the benefits of increasing your savings rate. If you can increase your current savings rate to above 70% of your income, you will be able to retire in ten years (if you want to). But let's say that you have begun a path towards a more frugal lifestyle, but you are still struggling to save such a significant portion of you pay. If you find yourself in this type of position, it may be worthwhile to temporarily increase your income in order to reach your long term financial goals.
This Strategy Isn't for High Earners
If you are making over $75,000 per year, this strategy probably won't work as well for you. That's because if you are making an exorbitant sum of money such as that and are unable to save 70% - 80%, you are doing something wrong. Any of us as individuals can live comfortable lives on $20,000 per year if we make smart choices; so if you are spending more than this you should probably focus on that problem first. But if you are making somewhere between $40,000 - $60,000 each year (or less), you can probably benefit from increasing your income. Read on!
A Little Bit of Money Goes a Long Way
Let's say that your life is somewhat similar to this scenario below. You make $50,000 per year and are able to save $25,000 and live on between $15,000 - $20,000 once accounting for taxes. You are probably feeling pretty frugal -and hopefully proud- at this point, but you are starting to reach a level of spending where additional spending cuts might reduce your happiness. Rather than the conventional approach of saving more, it might be time to increase your earnings.
Let's assume that you are working 40 hours a week and you could find another job earning between $10 - $20 per hour where you worked about 10 - 20 hours per week. On average, this would bring you about $10,000 more per year. This is hugely beneficial. If you are very disciplined and save 100% of the money from your second job, you could boost your theoretical savings rate from 50% up to near 60%. Now, a 10% increase in total income saved might not sound like a big deal, but in this example that extra $10,000 every year actually saves you 40% more than your original $25,000. So in practical terms, if you check out the "Years Saved per Year" column, you will see that instead of saving one years worth of spending per year, you are actually saving 1.4 years. Based on the 4% rule, we know that it takes 25 times annual spending to retire: and you have just saved 7 years of your working life. That's right, a small extra workload while you are young can bring you financial freedom 7 years sooner.
Life Requires Sacrifices
If you are young, single and healthy, chances are when you get out of work every day, you find yourself with a lot of time that gets spent on dumb things like watching TV or taking long bubble baths. Now, I'm not saying that these things can't be fun, but they probably aren't adding any value to your life. If you are in a position to switch out some of these menial tasks for some extra work, it can really pay off!
Personally, I am willing to sacrifice House of Cards to spend time working on ways to increase my own earnings. If spending a little bit of extra time now working and earning some extra money can really make a near decade long difference in my life, I can't justify not going for it.