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Better Than A Raise
By JLP | August 20, 2008
Everybody loves raises. In fact, it might be safe to say that everybody craves raises. When annual review time approaches most people get serious, determined, anxious, afraid, defensive, aggressive, or a whole host of other emotions. Many times this isn’t just in reaction to the idea of being evaluated or criticized – it’s in anticipation of finding out how much of a raise you might be getting. Entire career paths are plotted around the fastest way to move up the pay grade.
Granted, it’s natural to want to be paid as much as possible. But why is “the raise” really such a big deal, especially if you are only looking at an inflationatory increase of 3% or so? Is it because you desperately need that 3%? Is it because you really think that 3% will be the little kick you need to raise your standard of living or boost your retirement contributions? Or is it because you’ve fallen prey to the idea that you’ll finally have “enough” if you can just get a little bit more?
In fact there is a much easier, more efficient, more direct, and more important way to save more, boost your standard of living, and finally relax feeling like you have enough and that you are on track. It’s no magic secret: it’s the Power of Attentive Spending.
That might sound hokey, but check out the article “Save $6,000 By Paying Attention” attached to the link above. It outlines 6 essential areas where it is very easy for the average household to decrease spending – it’s not “belt-tightening,” just a more efficient use of the money you have each month.
With a household income of $31,987, that $6,000 a year in savings is better than an 18.8% raise for the median American household. That’s nearly six years of income increases, according to the wage figures for the average private-sector worker tracked by economic indicators. (The average worker’s weekly wages were $606.94 in June, and you have to go back to November 2002 for the average weekly wage to be $510.89.)
Why is the gain from attentive spending better than an 18.8% wage gain? Simple. That $6,000 in savings is after-tax income, not pretax income. Spend a few hours — even a few days — looking at alternatives, and a typical household can find economic benefits that are literally worth weeks of job-time work.
The benefits are even more interesting if you ask what you’d need to have in investments to produce $6,000 in after-tax investment income. Do that and you learn that your attentive-spending “portfolio” is greater than the amount most people have accumulated in their retirement plans.
Suppose, for instance, you have the good fortune to live in a no-income-tax state and want to get all your return from a portfolio of common stocks. At a 15% tax rate on dividends, you’d have to collect gross dividends of $7,059 to net $6,000 a year. With the S&P 500 Index yielding 2.29%, you’d need to have $308,246 in your portfolio.
Interesting, huh? None of us may be able to wake up tomorrow and get a 20% raise or inherit a $310,000 investment portfolio – but most of us can wake up tomorrow and be just as well off as if we had, simply by being aware of our spending.
More from Meg at The World of Wealth
Topics: Budgeting | 7 Comments »
August 20th, 2008 at 10:07 am
Good post. It will make us all think about our spending. Good reading!
August 20th, 2008 at 11:39 am
Welcome back, Meg!
August 20th, 2008 at 11:50 am
Being conscious of your spending is incredibly important – if you’re spending money and not really caring where it goes then that 3% really means something. But if you were to cut back on wasted money you can easily get more out of the money you make.
Over the past few months I’ve become incredibly aware of where my money is going.I now realize that I used to spend way more than I should have and had I been aware a decade ago I would be in a great financial situation now. You have to be willing to look at your numbers and adjust… based on your needs and lifestyle.
August 20th, 2008 at 12:23 pm
$65 monthly by getting cheaper car insurance.
$110 by optimizing its life insurance.
$200 through smart food shopping.
$35 in phone costs.
$25 in bank fees.
$65 by paying off credit card debt.
I find it interesting in the article this amount is saved for a household but then they use salary numbers for a single persons income.
With these items many of us that will be reading this site have taken care of these issues. Personally of this list to save $500/month I have already done my homework on car and home insurance, pay no bank fees or credit card interest. I don’t know about optimizing life insurance but I know that I could not save that much at all. I guess I am down to saving some money on food costs and get rid of my only phone.
August 21st, 2008 at 4:28 am
great article, very interesting
August 21st, 2008 at 9:12 am
Cost cutting can only get you so far. Every dollar you save in expenses is incredibly valuable, but the bottom is there somewhere. A $30K/year earner will never live like a queen by cutting; she’ll live like queen by getting more income. Income is #1, tempered by control of consumption.
August 25th, 2008 at 2:49 pm
I always figure one freelance job a year is like getting a one time 15% raise. There’s no reason to leave a good job with benifits over a couple of percentage points.