Frugal living is widely discussed when it comes to financial management. Living frugal doesn’t mean you rinse and reuse paper towels and styrofoam cups. It does mean you stretch your money as far as it will go, by spending money on what’s necessary and eliminating compulsive spending.
Sometimes you have to live frugal because you don’t have a high income. But, when you have enough income to meet your needs, you may choose to live frugal because you want to save for retirement and build wealth. Though being frugal will take you far, that alone won’t take you to financial independence or wealth.
Let’s look at some numbers. Say your monthly income is $4,000 and you manage to get your monthly expenses down to $3,000. You’re able to save $1,000 a month. If you put that into a savings account at 2.5% for 20 years, you’d end up with just more than $378,000. But, that’s all. If you want to save more than that, you’d have to cut your expenses back or you could look for ways to increase your income.
When all your expenses are covered by your primary income, anything you make above that can be used to continue building your wealth. The obvious way to increase your income is to get a second job, but that isn’t the only way.
Ask for a raise. If it’s been awhile since your last raise, talk to your employer about an increase in your salary. Prepare for the conversation by going through your achievements and figuring out why you’re valuable to your department and company.
Work overtime. Many companies require approval before you work overtime hours, so check with your boss to make sure you have permission to work overtime. Otherwise, you could end up working those hours and not get compensated for them. Worse, you could receive an infraction for working overtime without permission.
Get an extra certification or degree. The more training you have, the better your chances of getting raise. Statistics show that college graduates with a Master’s Degree earn more money than those with Bachelor’s Degree. Likewise workers with a Bachelor’s degree earn more than those with only a high school diploma.
The Census Bureaus reports that, in 2007, these were the median earnings based on educational attainment:
- No high school diploma – $19,405
- High school diploma – $26,894
- Associates degree – $32,874
- Bachelor’s degree – $46,805
- Master’s degree – $61,287
These numbers let us know that the more education you have, the more money you can earn.
Even if you don’t go back to earn another degree, you can look for a certification in your field. For example, if you work in project management, you might get the Project Management Institute’s Certification.
Look for another job. If you can’t get more money from your current job, it’s may be time to start looking for employment somewhere else. Update your resume and use the internet to scope out new jobs. Ask your friends and relatives to keep an eye out for new employment. If you decide to move to a new position, make sure you’re not sacrificing your retirement savings or other benefits with your current company.
Do some odd jobs on the side. Do you have a skill you could put to use? Maybe you’ve always wanted to do gardening. Perhaps you’re good at repairing refrigerators. Come up with a rate for your services and put the word out that you’re available.
Get a money-making hobby. Is there something you like to do, a product you make, that’s in demand? Start selling it. If you like to sew quilts or make wood crafts in your spare time, you could sell them at bazaars and flea markets on the weekend. Offer to make scrapbooks for people who want to capture their memories but aren’t very creative. If you have something you like to do for fun, think of how you can get others to pay you to do it.
Start your own business. When you work in someone else’s business, your income is limited by what your employer says you can make. But, when you start your own business, the proverbial sky is the limit when it comes to income. Think about the odd jobs you do or hobbies you have. Can you turn either into a business? Maybe you have an idea for a service that’s not offered. Seek out your local chamber of commerce for information on starting a new business.
Invest. Many people shy away from investing because they don’t know much about it. When people like Warren Buffet have made their fortune from investing, it’s appalling that more of us don’t learn about the stock market. Sure, investing is risky, but there are safer ways of investing like finding the best CD rates, money market accounts, a high-interest savings account and mutual funds. Take a trip down to your local library or bookstore and pick up some beginner books on investing.
An increase in income might also mean an increase in the taxes you owe. If you’re not careful, you could end up with a tax bill when April 15 comes around. If you’re earning money on the side, you could tweak the tax withholding from your day job to have enough taxes withheld to account for both jobs. The IRS Withholding Calculator can help you figure out how many exemptions you should claim to account for your income. You can also talk to an accountant or other tax professional to help you figure out how to make sure you don’t end up owing taxes at filing time.