Often, the best answer is to simply earn more money.
Last night, I spent a couple hours catching up on reader emails. Inevitably, about a third of the emails I receive are from people in their 20s or early thirties who are stuck under mountains of debt.
Student loans. Car payments. Credit cards.
Some of the debts stretch into the six figures (not including mortgages). Some of the readers have fallen behind or simply haven’t been paying the bills. And almost always, the person does not earn enough money.
The less money you earn, the easier it is to fall into debt, and the harder it is to get out.
I know this from experience.
Spending Less Only Goes So Far
If you have been reading personal finance books and blogs for a while, you’ll have come across plenty of advice on frugality—how to live on less and save money on everything you buy. It’s there for a good reason; it’s smart to be frugal and not pay full price for everything.
But frugality has its limits.
REACHING YOUR EXPENSE FLOOR
Although it’s possible to cut unnecessary expenses out of our budgets and to save money on everyday expenses by comparison shopping, clipping coupons, negotiating, or buying used, you can only trim so much fat before you’re cutting away the meat.
Sooner or later you’re going to hit what I call your expense floor. It’s the amount of money you need to live at your minimum comfortable level. Once you hit your expense floor, you can’t practically cut your expenses any further.
Everybody’s expense floor is different. Yours will depend on things like:
- Where you live.
- How much debt you have.
- What you’re willing to sacrifice and what you aren’t.
The last one is tricky. Personal finance gurus love to advocate SACRIFICE. They’ll say you should sell your car and take the bus to work. Or that as long as you’re in debt, you should never take a vacation or go out to eat again. Now, I’m not saying you should indulge in a week in Paris or regular meals at Morton’s when you can’t afford it. But I AM saying this: Allow yourself to enjoy life while you work on your financial goals. Within reason.
Why? Because if you don’t give yourself little indulgences on a routine basis, eventually you may break down and sabotage your progress by blowing your money on something big.
This applies when you attempt to run a few miles, work uninterrupted for several hours, stick to a diet, or resist spending money on a regular basis.
(Also, I shouldn’t need to point out, that when you reach your expense floor, life won’t be much FUN. I mean, you don’t need to be rich to enjoy life, but nobody WANTS to sweat every penny month in and month out.)
How then, do you continue to find more money to save or put towards debt if you’ve cut your expenses all the way to the floor?
You earn more money.
This is the conclusion I came to several years ago.
Example: How I Started to Earn More
Here’s my story. (Cue the wavy lines and flashback music.)
It was five years ago—the Spring of 2006—and the consequences of my early-adulthood financial fatuity were approaching their most severe. I had been out of college for three years, but my choices of both major and initial career (sociology/journalism) weren’t exactly helping my finances.
I had managed to leverage my editorial skills to trade my magazine job for one writing marketing copy—a move that got me a sorely-needed extra $5,000 a year in salary.
So at 24, I swallowed my pride and moved back in with my mom and dad.
Still not enough.
I didn’t have to pay for rent or food. My only necessary monthly expenses were gas and car insurance (plus all the minimum debt payments). Of course, I wanted SOME money to have a little fun each month, but the fact was that I barely had enough to cover my debt payments, let alone accelerate my repayment progress.
I could’ve cut out every penny of “fun” spending—the occasional dinner and drinks with friends—but I simply wasn’t able to completely cut this out (because I knew from experience, overexerting my will day in and day out only led me to later screw up in an even bigger way.)
I had reached my expense floor. I couldn’t (or, at least, wasn’t willing) to cut my expenses any more.
Still, I HAD to do something about my debt…I didn’t want to be in debt forever.
That month, I made the decision that would change my life…the decision to earn more money. I was sick of being in debt. I had cut expenses all I could. Then, I decided to figure out how.
I wrote down the three ways I knew to earn more money:
- Get a raise or higher paying job.
- Get a second job or freelance.
- Start a business.
Eventually, I would do all three, but I started by getting a second job.
I don’t necessarily think that a second job/freelancing is easiest of the three ways to earn more money, but it’s absolutely the one you can make happen the fastest.
- If you’re willing to do crappy jobs for low pay, you can find part-time work.
- If you have marketable skills, you can freelance.
In my case, I became a Starbucks barista. I’d work 8-5, hop in my car and battle rush hour traffic to work 6-10 serving coffee 3-4 nights a week. Then I’d do a six or eight hour shift on Saturdays. That brought in an extra $800 or so a month (net).
That was good, but I wanted to get out of debt AND move out from under my parents’ roof. It wasn’t enough.
In a couple months, I found a new day job that paid $6,000 a year more. I took it.
I continued to work at Starbucks, although with the new job’s location, I now had to sit in 45 minutes of even worse rush hour traffic to get between the two. But in less than six months, I had gone from earning $34,000 to over $52,000 a year, putting well over an extra $1,000 in my pocket—and towards my debt—each month.
Was it easy? Hell no. But I was making progress.
Just a few months later, I got lucky. My previous employer created a new position and thought highly enough of me to ask me to apply. Ultimately, they offered me more money to come back in a slightly different and more challenging role. The result was an $8,000-a-year raise plus bonuses. So now, in less than a year, I had more than doubled my income.
While all of was happening, I started MoneyUnder30.com.
Back then, this blog wasn’t much. I posted a couple crappy, wandering posts, let the site sit idle for several months, then wrote a bit more. But in early 2007, I started to find a rhythm with blogging. Some of my posts did well in the search engines, and rising traffic levels gave me motivation to keep going.
Eventually, I started to earn some money from the site, too.
It started slow—a hundred dollars here, a couple hundred more there. A year later my site was earning over a thousand dollars a month. Another year, and my site was grossing the equivalent of a modest salary. Today, I earn more from my blog than I do from my job.
I’m NOT saying this to brag about my blog’s success, but to show you that in five years, I increased my annual income about 500%. As a result, I was able to pay off some $80,000 debt in just a few years. (Not to mention afford to get married, move into a house, and start a family.)
Had I NOT increased my income, or not done it so dramatically, I would probably:
- Still be in debt.
- Not have emergency savings of any kind.
- Not have been able to afford a home, have a baby, or even have gotten married.
So there you have it. If you’re tired of cutting expenses and getting nowhere, make the decision to earn more money today. If you’re willing to do what it takes, this hands down the best way to get out of debt or reach your savings goals faster. I know because it worked for me.