Money Saving Tips – Earn More, Save More

By on May 6, 2013 | Personal Finance | no comments yet, be the first!

Money Saving Tips – Earn More, Save More

Welcome to the first edition of Money Saving Tips! As you may know, we are all about helping you improve your finances so you can live a better, happier lifestyle. As part of our effort, the Money Saving Tips articles will discuss different strategies you can use to save more money. This week we will focus on what you can do when you get a pay raise or another increase to your income. Instead of spending your newly-earned money, I challenge you to Earn More, Save More!

The Rat Race

A pay increase is always pleasant, but chances are that it’s going to come as a surprise. Most people don’t expect guaranteed raises and don’t plan their lives around them. So when they do come, it’s often a time to celebrate. It’s a time to throw a party, to go to a nice dinner, to take a vacation, or even buy a new car. We feel that the increase in our salary is the reward for our hard work – a reward we should enjoy by getting ourselves something we have been longing for, but couldn’t afford.

There is nothing wrong with feeling a sense of accomplishment, but increasing your expenses every time you get a pay raise is not a smart financial move. If you match every increase in income with an increase in expenses, you will never widen the gap between the two. This gap is exactly what allows you to save and invest more money, so this behavior is not going to help you meet your financial goals.

Earn More, Save More and Build Your Wealth Faster

Money Saving Tips - Earn More, Save More - WealthConsider this – you likely already have a budget (if not – you should make one) and are relatively happy with your current lifestyle. You may not be living the life of your dreams, but you are able to pay your bills, contribute to your savings and investments and even have fun every now and then. All of this you have been doing on your current income. So now that you are getting paid more, why all of a sudden do you need to go out twice a week? Do you really need those more frequent vacations? That new car?

A great strategy to save more money is to keep your lifestyle unchanged after each pay raise. Instead of increasing your expenses, increase your savings and investment contributions. Look at each pay raise as an opportunity to build up your emergency and savings funds and fatten your investment portfolio.

Case Study

Let’s compare two friends – Nik and Chris, who have the same jobs, the same investment portfolios and the same lifestyles. Both of them just got a 5% pay raise. But while Nik started spending more money, Chris wisely began to put away all of the extra income toward his portfolio. Lets see what happens after 10 years:

Nik

  • Monthly Income: $5,000 (old), $5,250 (new)
  • Expenses: $4,500 (old), $4,750 (new)
  • Portfolio Contribution: $500 (old), $500 (new)
  • Portfolio Size: $250,000
  • Portfolio Size in 10 Years: $646,992.90

Chris

  • Monthly Income: $5,000 (old), $5,250 (new)
  • Expenses: $4,500 (old), $4,500 (new)
  • Portfolio Contribution: $500 (old), $750 (new)
  • Portfolio Size: $250,000
  • Portfolio Size in 10 Years: $693,034.32

Nik’s actions cost him more than $46,000 over the course of 10 years! And his losses would be even bigger if he received additional pay raises or invested for longer.

The Challenge

My challenge to you is to always try to earn more, save more. Keep your expenses the same after each pay raise and save or invest your extra income. Your future self will thank you for it!

Have other great ideas for saving more money? Tell us about your money saving tips below and we may include them in future articles in this series!

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