Live Rich by Spending Less

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So much personal finance advice is focused on controlling your spending. If you look at the the finances of the average American, it is easy to understand why. Most people spend every dollar they earn and then some. If their income goes up this habit continues and it doesn’t really matter how much they make — they spend just a little bit more.

However, there are people out there who live within their means. For these type of people, the value of the “don’t spend everything you make” advice isn’t quite so great. Being frugal can only reduce expenses down to a certain point and if that is your only approach to freeing up money, it will eventually start cutting into your quality of life. You may be able to save money by turning off cable without feeling any pain, but trying to keep your house at 45 degrees in the winter to save on gas is probably going to take a much heavier toll.

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Once you have your spending well under control and are living within your means, you’ll probably get more return on your investment by focusing on increasing your means and trying to up your earning power. The interesting thing about going in this direction is that there isn’t a floor you will hit like you will with decreasing your spending.

So how do you increase your means? Here are some ideas:

1. Ask for a raise

Some people never get a raise because they never ask. If you feel you are extremely valuable to your employer, sit down and have a talk with them about it. Be prepared to back up your claims with documentation. Another good tactic is to take the time in your reviews to ask what you can do to be worth more to the company. Then do that and next time around, show what you’ve done and see if it can qualify you for a bump in salary. A $50 salary increase is worth more than $1,000 per year to a full-time worker, so even a seemingly small raise can have a big impact. Oh, and don’t forget that a lot of increases are percentage increases based on your current salary. So anything you can do to raise the level of that salary means your future increases will be calculated based on a larger number.

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2. Change jobs

Employers often operate in panic mode. This means that they are far more willing to give a higher salary to keep from losing a potential new employee or to keep from losing a current valuable employee than they are to keep current people happy. So if you want to take large leaps in your salary, it is probably going to require at least being willing to change jobs. I’ve seen a lot of people who have gotten a better job offer, talked to their current employer and ended up staying where they were at the higher salary they were offered elsewhere. This isn’t a way to try to trick your employer. You shouldn’t present a higher offer to your current employer unless you are really planning on leaving, but if you are to that point and you like your current employer other than the salary, it seems reasonable to at least let them know that you’d rather stay but can’t turn down the financial incentive to leave.

3. Consider more than just the salary of a job

Making $100,000 in San Francisco would probably make it hard to find a place to live unless you are willing to commute. Making $50,000 in many areas of rural Kansas would put very few nice large homes out of your reach. Don’t get to focused on your base salary that you overlook the actual buying power that salary gives you.

Also, don’t forget that different employers pay for different things. A higher salary but needing to buy your own health insurance may not be as good as a lower salary where medical, dental and eye insurance is included. Many employers have benefits that no one takes advantage of. I once took a job with a very large cut in pay because the new employer had a generous policy regarding continuing education that none of their current employees were taking advantage of. Their tuition reimbursement and time they allowed off for education got me most of the way through a master’s degree from Harvard’s Extension school.

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4. Invest in yourself

Related to education, one of the best ways to leap forward in your earning potential is to have a well developed skill set. Education is one aspect of obtaining that skill set, but experience is just as important. Together, education and experience can form a very strong mechanism for increasing your earnings potential.

5. Start something

Starting a business isn’t easy and it isn’t for everyone, but if you have a broad skillset, it is unlikely that you will ever see your full earnings potential working for someone else. That doesn’t mean you need to just up and quit your job to start a new business. Many businesses can be started “on the side.” I have a friend who started a business selling hairbow making supplies ( he imported from China. They started out just using a small space in their garage and have now grown it into a very large business. I have another friend who created a successful side business making and selling cupcake towers ( – all while doing her regular day job.

Unlike working for an employer, a business you start is something you own and not only can you make income from it, but the business as a whole has value that you may be able to sell to someone else someday. Another friend of mine started a website on a topic they loved, grew it while working for someone else and eventually sold it off for seven figures.

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