Whether you’re deep in debt or just having a few financial hiccups, it’s almost certainly the case that you’re spending more than you’re making.
A lot of personal finance writers will advise you to cut your expenditure. Eat out less often, downgrade your cable package, stop buying pricy coffees, and so on. There’s a strong focus on getting rid of unnecessary, day-to-day spending – sometimes dubbed “the Latte Factor” (a term coined by financial adviser David Bach). Wise Geek explains it like this:
The Latte Factor® is a euphemistic label for all that extra money we spend daily on nonessentials such as candy, bottled water, doughnuts, muffins, soda, cigarettes, magazines, newspapers, and yes, lattes.
It’s good advice, as far as it goes. Daily amounts do add up fast, and by cutting out a regular “nonessential” you could probably save at least $50 each month.
But however much you cut out the fat of your spending, you’re going to pretty quickly hit a wall…
You Can’t Go That Low
All of us have certain fixed expenses. Typically, these will include:
- Rent or mortgage
- Utilities bills (water, gas, electric, broadband…)
- Travel to work/school
- Clothes, personal hygiene products, etc.
It is certainly possible to spend very little by living in a radically different way – moving in with parents, for instance, or becoming a freegan. But you might well feel that you don’t want that sort of lifestyle.
So, however much you cut down on all the little luxuries of life, a big chunk of your paycheck will still be going on costs which you have to meet.
Employed or Self-Employed?
When we’re trying to improve our financial situation, most of us focus first on cutting our spending because that’s more within our control. However, we all have some influence over our income.
If you’re traditionally employed – paid a salary or an hourly rate by your boss – then there are a couple of straightforward ways to increase your income. You could ask for a raise, work overtime, or switch to a different job which pays more.
If you’re self-employed, it gets easier. Increasing your income is often just a matter of working more hours – or increasing your rates. You may well find that, when trying to improve your financial situation, spending less means earning less. For instance, if you’re cooking from scratch rather than eating out (and saving $5 per meal), is that really worth the hour of lost work time?
It’s a very rough rule of thumb, but if you’re employed and you’re spending more than you’re making, look first at cutting your spending. If you’re self-employed, look first at how you can improve your income.
Increasing Your Income Alongside a Day Job
Even though the 9-5 worker may be becoming a thing of the past, most people still have day jobs. So how can you increase your income while working full time?
A few great ways are:
- Take on a Saturday job. You might only do it for a few months, but it could be enough to plug the hole in your budget and get you back on track.
- Freelance. You can use your professional skills as a contractor, not just as an employee. For instance, if you work for a magazine as a graphic designer, you could set up a simple website offering freelance graphic design. This might mean spending an hour each weeknight, or a few hours at the weekend.
- Sell stuff on ebay. Almost anything – clothes, books, DVDs, electronics – can be sold second-hand. Some items will be worth more than others, but if you’re not using it, anything is profit.
- Start an online business. You could sell crafts on Etsy, sell webhosting through a large web host, sell digital products like ebooks and audio books … almost anything!
If you know you’re wasting money on things which you don’t need and which don’t really bring you any pleasure, then by all means cut down your spending. But if you feel there’s no slack left in your budget, start looking at ways to increase your income too.
Got an income-generating idea to add? Share it with us in the comments.
Don’t Forget To SIGN UP for the PTB Newsletter!