At times in my life, I’ve been in positions where I’ve worried constantly about saving money. I’ve also been in situations where I had more than enough cash to go around with little to worry about.
In my experience there has only been one thing that has ever alleviated the stress of my finances (I’m the type that worries a lot) and helped me save a lot of money. All the times where I’ve felt financially confident, stress free and accomplished with my savings is not because something I’ve done in my budget. This experience of success has come only when I’ve grown my income.
I’m the frugal type of person, my natural instinct is so save every resource I can get my hands on. I still have a shoebox filled with birthday cards and cash I received decades ago as a child. I’ve far surpassed all the typical money saving financial advice. Even from the time as a child I had the personality and discipline to save for the future, it’s just how I am.
This has been valuable to me over the years, providing a cushion and a foundation for success in other areas of my life. It doesn’t work on its own though. It’s a math equation, even if you saved half your income, it would take decades to save and invest enough money to quit working. Even if you saved and invest your entire income, at an average salary it would be decades before you were “wealthy”.
The only way to make any real progress on your financial picture is to increase your income. This could take many different forms, there is no one way to do it. You could get new job or promotion, start a business (even if it’s just a small venture on the side), you can invest to build a passive income stream. There are a lot of options to improve your income and financial growth.
There have been several occurrences over the years where I’ve been able to grow my income in a variety of ways. Each time, it’s created excitement, relieve stress and strengthened my financial picture. It’s not that I want a more expensive lifestyle or need more money in my budget, but finding a new revenue stream or getting a promotion, makes me happy. It makes me feel successful and reaffirms that I’m creating value for somebody. When I know that I’m creating values for others, I feel good, I feel secure, my stress disappears.
The more money you make, the quicker you can save. It also gives you far more flexibility in your budget which makes savings far less important. Let’s say you make $5,000 per month after taxes and have average expenses of $4,000; the other $1,000 goes to savings. This is a higher savings rate that most people have, in fact 20% savings would be in the top few percent of people in the United States. Think about if you could grow your income from $5,000 to $8,000 (this isn’t a huge jump) but keep your fixed expenses at $4,000. You’d then have $4,000 of cushion every month to handle any surprises that come up. Before, if your car broke down and cost $2,000 to fix, you’d need to dip into your savings to pay for it, costing you two months worth of savings. Now you’d be able to pay for it out of your normal paycheck and not dip into savings at all. Not only are you accumulating money more quickly, putting away up to $4,000 each month, you are providing cushion so that unless you have a surprise expense of more than $4,000, you don’t need to pull from your savings at all.
This makes a huge difference long term. A lot of people are in denial about how much money they save. They put away some money one month and feel good about being responsible, but they are planning to spend it on something a few weeks or months later. Putting money away this month to spend next month on a big ticket item like a car or vacation isn’t saving at all, it’s just delayed spending, in the end you aren’t really making any progress.
You will also run into a psychological problem which occurs when you are only focused on saving money, you start to only car about hoarding cash and become stressed about every dollar you spend. This won’t happen if you grow your income. This is because you can only save a dollar once, once you’ve earned it and put it in the bank to sit, all you can do is wait and someday spend it. Conversely, you can keep making money forever, there is an unlimited supply of value and wealth to be created, I can keep growing my income and wealth forever. If I find a way to earn money, If I can create a system or process to generate profit, I can repeat that process as many times as I want. I can always work towards bigger and better goal, becoming more and more profitable at each step. Once you build confidence in your ability to earn money, you’ll worry about saving and spending money far less. You make yourself valuable, or better yet own a systems or asset that is valuable, you no longer become reliant on keeping cash in the bank.