A few months ago, I did a Twitter poll asking the Personal Finance community if you should focus on Increasing Income or Cutting Costs. I purposefully left option C of “Both” off the survey because I wanted to know what people thought was MOST important.
Thankfully they agreed with me (barely) and Increasing Income came out on top. Both are important, and one may be more important depending on your current situation. Some examples:
If you are making $100,000 and not saving anything, targeting your spending makes more sense
If you are making $36,000 a year and not saving anything, a focus on increasing your income makes more sense.
The latter example was me, six years ago. Could we have cut spending? Sure. But the floor we could cut too was shallow and increasing income has unlimited potential (theoretically). I didn’t see a point in making a ton of decisions or sacrifices to save a few hundred dollars every month. Instead, we focused on making thousands more every single year.
I went from $36,000 to $85,000 in 6 Years – 136% increase.
Mrs. AE went from $36,000 to $65,000 in 4 years – 80% increase
That is an extra $78,000, every year for us to put to work. There is no way we could come even close to making that big of an impact by cutting spending. Increasing our income is by far the biggest reason for our Net Worth progress over the last few years. I am depending on the above trend to expedite our Financial Independence journey.
Why I push increasing income so hard, especially for the younger crowd:
- You can increase your savings rate without cutting current lifestyle
- One change pays you every month, every year until you stop working
- Raises compound over time (check out the example below starting with a $40,000 salary)
From $40K to $65,155.79 in ten years!
Please head over to the Financial Independence Action Series page for more FI content!
Methods we used to increase our income
A brief outline of all the different moves and methods I used to increase my salary from $36,000 to $85,000.
1. Curating a Positive Reputation
It might seem a little weird to talk about your reputation as the first section of an increasing your income post, but a good reputation early in your career will do wonders for you down the road. On the flip side, a bad one can kill your momentum before it even starts.
Managers talk. Peers talk. So if you develop a bad reputation that information will transfer well beyond your immediate network.
There are people I started with that moved on to new positions, and when they applied for jobs on my team I would share my experience. Even if I hadn’t worked with them for a few years and they completely changed their work habits peoples perception may not have changed.
Is it right? Mostly no, but if there are two people going for the same job and you have positive experiences with one and knew the other to be a slacker. Where are you going to go?
A fringe benefit is if you have a short slacking period people will give you the benefit of the doubt.
2. Knowing/Understanding Salary Ranges
I didn’t know if this deserved its own section, but it has played heavily into multiple sections below so it is worth highlighting. If you are going to successfully negotiate, you need to know your value. Both at your company and the overall job market (A.K.A. other companies that employ people with your skill set)
Above average employee with a below average salary? Time to start doing yourself a favor.
Glassdoor is a great resource that you can filter down by your title and geographic area.
This also plays into potential job/career changes in your future – if income is one of your primary drivers you should be vetting your potential career paths and using it in the decision-making process.
3. Getting the Most out of Yearly Raises
I laugh, every year, at the people who complain about putting their performance review together.
They think it is just an administrative task that gets filed away, and I guess that could be true at some companies. But I have found it to be an incredibly useful tool in getting the best yearly raise available. Don’t just list what you accomplish, but how it has positively impacted the company. Focus on the big wins, no one is impressed by the shit you are expected to do.
For example “I was on time every day” isn’t an accomplishment, its a requirement.
It is worth putting in the effort and don’t be afraid to brag about your accomplishments. This is your once a year opportunity to sell your performance to your manager with a nice little bow on top. Its an easy lead-in for number 4 and 5 below.
4. Relentlessly Pursuing Promotions
In my experience promotions are the biggest payout but don’t happen quite as often.
My strategy has been to start the conversation as far as 6 months before I want the promotion to go into effect. Simply starting with I would like to start pursuing the next step in my career, what do I need to show you to make it a reality. The best part about this approach is it is really hard to say no to someone who is just asking what they need to do, then once you actually deliver it is hard to say you don’t deserve it since they set the criteria.
It is really important to establish a timeline for progress check-ins so your request doesn’t go stagnant. I would shoot for monthly, and wouldn’t go beyond quarterly.
Every single one of my promotions was initiated by me, I have never had a boss randomly say “you know what, I think it’s time to give you a promotion.” Maybe it happens, and I am too impatient to wait for it, but I would rather control my own destiny and start pushing the issue.
5. Asking for a Raise When Responsibilities Expand
Promotions are not always going to be available, but if you expand your responsibilities or take on a new project it is not unreasonable to expect to be compensated for the expanded responsibilities. Don’t expect it to happen on the first day, however, my experience is you need to prove you can handle the work before the money flows in behind it.
I did this at the end of 2016, I took on a few extra projects outside of my job description (which eventually led to number 6 below) and as the projects concluded successfully I brought up a salary increase. It makes it really easy when you can back up your request with proof. Both for the pitch to your boss and their defending of you once the wheels are in motion.
6. Don’t Waste An Opportunity to Negotiate
You do not get many chances to have an open salary negotiation with your employer.
Over the last six months, I have been in talks with my boss about transitioning to another team within the company that aligns more with the role I fill. There is a chance this was going to be looked at as a lateral move.
Obviously, that didn’t sound appealing
Instead of just taking the transition, I expressed concern over being moved laterally as I have been doing the job for over a year and felt like I would be starting over in my new role. That simple statement got the conversation going and eventually led to the transition including a pay increase that would not have happened if I didn’t raise the issue.
Action Item: If you want to increase your income rapidly you need to create as many opportunities for it to happen as possible. Go through the above list and decide on the technique that fits where you are and start the conversation.
Be your own advocate, if you have your employers best interest in mind they should have yours. You are the only person that can tell them what it is.
Salary increases, especially big ones are not handed out. We both had to grind for multiple years, $2,000 – $5,000 at a time to make it happen.
Other Career Development/Increasing Income Resources
ESI Money – I love the way he talks about your career as a multi-million dollar asset, head over to his Earn Overview that links to the rest of his awesome content
There is another popular option to increase your income that involves changing employers; I personally don’t have any experience with that and am looking for someone to fill that gap