Why making more money will make you happier and help reach your goals faster than just saving
Personal finance blogs love to talk about budgeting and saving money. I do it…a lot.
But is spending less really going to get you to your financial goals? How much can you realistically save? Is it going to be enough and at what price?
I’m not ditching my frugal lifestyle just yet but the answer to financial happiness might be in earning more instead of spending less.
How Much Less Can You Really Spend?
The average household has an income of $60,448 after taxes according to the Consumer Spending Survey by the Department of Labor. That’s for an average of 2.5 people, which sounds weird but just means most households are between two and three people.
The average family spends $55,944 according to the survey which only leaves $4,500 for saving. That’s not nearly enough for retirement.
Even if you were able to save all $4,500 a year and get a 6.5% return on your nest egg, you’d have just $388,700 at the end of 30 years. That might not seem too bad but it’s only about $1,000 a month in retirement income after accounting for taxes and on a 4% withdrawal.
You realize this and click through to your favorite personal finance guru, who tells you to just spend less money!
But how much can you really cut from your current spending?
There are some easy places to cut like eating out and entertainment. If cut out all entertainment and saved half on what you spend eating out by only eating at home, you could save another $3,890 a year…and be completely miserable.
That extra $3,890 in savings would grow your nest egg to $725,000 and mean about $2,050 a month to spend in retirement. So basically, you spend 30 years with no fun for an extra thousand a month when you’re too old to enjoy it!
There just isn’t that much to save in the average budget and not as much reward in doing it.
Worse still is the fact that prices are rising faster than wages. If prices rise by 28% over a decade at their long-term average, but your income only rises by 15% over that period, you’re going to start slowly seeing your savings squeezed.
One in three Americans say they don’t have enough saved to cover a $500 emergency.
I don’t think that’s all from spending too much. A lot of it is because people just don’t make enough money and stuff just keeps getting more expensive.
Of course, none of this is an excuse to stop watching your spending. Everyone has a spot or two in their budget that can be trimmed a little. There are loans for bad credit to consolidate your debt and potentially decrease your interest rate.
How to Make More Money instead of Spending Less
The answer has to be making more money.
You can spend as little as five hours a week and make thousands more a year. Across the three ideas below, you can easily average $30 an hour working from home. That’s an estimate based on my own income making about $62,000 a year working full-time and after expenses.
On just five hours a week, you can save an extra $7,500 a year to add to your regular savings. That brings your nest egg up to $1,036,498 and a monthly income of $2,936 in retirement from just one person working a side hustle…and you don’t have to eat ramen noodles all your life to get there!
The first side hustle most people try is freelancing. That’s where you offer services or coaching from home, usually in a topic in which you’ve worked for a while. You can freelance anything, from tutoring to writing.
I’ve even seen people freelance their friendship! Yep, for an hourly fee they would hang out on Skype with someone and talk.
- What have you done for a living and what do you have experience in?
- It helps to have a passion for your freelance project, something you actually enjoy doing.
- Do a little research to find how much you should charge and how much you can make.
I make about a third of my income from self-publishing on Amazon. It’s extremely easy if you just make out a plan and a schedule to write your book. Each book can bring in about $200 a month income so you can grow a really nice passive income stream fast.
Last but not least for side-hustle income streams is blogging. You have to develop some kind of income source around the blogging, something like advertising or self-publishing or consulting, but the money can be really good.
You can even combine all three of these income streams. Start a blog about the topic in which you freelance. That will bring people to your site from Google and you can guide them into your products and services. Once or twice a year, reformat your blog posts into a book you can publish.
I’m not saying completely tear up your frugal-living punch card. You’re just a few bag lunches from a free sandwich. Don’t hang all your financial goals on spending less though. Look for ways you can make more money in just a few hours a week to help create the income you need and the future you deserve!
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.