I wanted to expand on a quick update post I did recently on optimising for income. There are generally two directions you can choose (or better yet, both!) to eke out money for investments; you can cut down on existing spends, or you can try to increase your income.

I find that generally, my willpower is not super strong, so I tend to favour the 2nd option, and I will try to show you why, here.

Cutting down on expenses

Cutting down on existing expenditure, or some people like saying, going the frugal way, requires a lot of discipline. Depending on what you scale back on, if that expense has become a habit, can be super tough.

A very popular example, the latte. Say for example, you’re used to having 2 lattes a day, and in the effort to reach financial independence, and potentially retire earlier, you have resolved to cut down by 50%, and only have 1 latte a day.

Let’s say you save $3.50 per latte, that saves you roughly $105 per month, and $1,277.50 a year. Now, how painful would it be for you to save that amount of money? You’ll have to remind, nay, hold yourself and tie yourself to that bedpost or workdesk and deprive yourself of that latte you enjoy so much, on a daily basis.

All of a sudden, saving really starts to become a chore. And when you add to that, Netflix costs and other things you may wanna cut back on, that you have thus far been enjoying, life starts to really become a misery.

Sure, you might be ~$2,000 richer by the end of the year, but you’ll also no doubt be a drag to be around!

Note: Sure, the latte factor is not just talking about lattes, but how we spend in general, but in terms of cutting back, I still strongly believe that in cutting back, seriously look at what you can realistically cut back, and not enthusiastically cut just because you were in the heat of the moment really super enthusiastic about FIRE.

Optimising for Income

If, on the other hand, you resolve to increase your income, either by starting a new side hustle (there’s plenty in the gig economy to get started), strategically negotiating for a pay increase, or even scoring a new job, you’re essentially putting in a one-time effort for (almost) perpetual gains, without the risk (or too much) of slipping back or regressing.

For example, say you’re looking to get a new job with a similar scope at a 10% – 15% increase to your current pay. Let’s say you’re making 5K a month. at 10% increase in salary (assuming everything is the same on an annual basis including benefits), you would have scored an additional $6,000 per year! (I recently switched jobs, and I absolutely endorse this method of optimising for income. Of course, you have to do it thoughtfully, and within the expectations of your new employer)

No cutting back, no forcing yourself to be frugal, you can spend as you were, and pocket that $6,000 extra into investments, just like that! Do that every few years, and with some shrewd pay increment conversations, you should be golden.

Let’s face it, it’s not like you’re gonna suddenly drink 10 cups of latte when you were previously drinking 2, just because you have extra cash lying around. Besides, there are ways to automate that so you don’t really see the extra funds.

That said, I’d like to know your experiences and thoughts. Sound off in the comments!