Saving $20k a year seems like a pipe dream for most of us. And when we are indeed seriously considering saving $20,000, the first thing we think about is how to cut back on spending!
It’s such a shame that even in 2024, gurus are preaching on canceling your Netflix subscription!
I almost took that advice and stopped binge watching Netflix, and my creativity suffered. I felt mentally exhausted! So, I don’t know about you, but if you value your creativity and mental health more than $20 Netflix subscriptions, let’s stop talking about how to save $20 a month and start talking about how to save $20k a year. Shall we?
Want to listen to this as a podcast instead?
Last year I’ve used a technique that I call “Dreamcasting”.
So, let me take you through it.
Picture this: You're stashing away an extra $20,000 annually without lifting a finger, and get this—it doesn't involve burning the midnight oil or turning into a penny-pinching Scrooge.
Sounds too good to be true, right?
But here's the deal—it's not some mystical money magic; it's one of the open secrets of the personal finance world.
Spoiler alert! It’s simple but it’s by no means easy.
Which is exactly why more people aren't shouting about it from the rooftops.
So, if you want an easy mystical way, stop reading right now. This requires patience, dedication to your craft, and above all, willingness to put in the work.
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The Myth of Saving Small Amounts
People talk about saving small amounts of money because it seems to the brain that saving $5 more here and there is easier. Now, conventional wisdom might have you believe that pinching a few pennies here and there is the way to go. I mean, it sounds easy, right? Saving an extra five bucks into your savings account by buying generic instead of brand-name.
Brew your coffee to save $7. Refill your coffee pods to save 10 cents!
It does seem that saving $100 dollars a month is easier than actually saving $20,000 in a year without working harder or sacrificing how you want to spend money.
But let's get real for a moment. If your goal is to amass a whopping $20,000 in savings over a year, those small, incremental savings aren't going to cut it. I'm talking about the difference between throwing a pebble into a lake and creating ripples versus making a splash with a cannonball.
Think about it this way. Imagine you're on a road trip, and every mile you cover is a tiny saving, like switching off your car's AC for a bit. Now, that's fine for short distances, but when you're on a cross-country adventure, you need to rethink your strategy.
It's not about depriving yourself of that extra scoop of ice cream; it's about strategic money moves that add up without cramping your style.
This blog is exactly about that. I'm going to talk about how you can save more without cutting back on your spending.
Increase Your Income
The first pillar to saving more without cutting back on spending is to increase your income. This is in fact my secret weapon because you are effectively increasing your wage per hour rather than working more hours.
There are various ways to do this. You can try and get a raise at your current job, ask for a promotion, or demonstrate the value you are bringing to the organization to negotiate a higher salary.
Negotiate for More: Think of your current job as a negotiating table. If you've been overdelivering on agreed outcomes, it's time to discuss compensation. Your skills and dedication deserve fair recognition, much like the value you place on a cherished item.
Climb the Corporate Ladder: So many of my students feel guilty about asking for a promotion. Yet, a promotion is akin to finally being recognized for your efforts. It's not just a title change; it often comes with a substantial increase in salary. You want to consider it as a calculated move rather than guilt tripping over it.
Strategic Job Changes: Now, let's address the elephant in the room—changing jobs. However, research has found that you tend to increase your salary far more if you change your job than if you were just to get a raise at your current job.
In my experience, a job change has always been like embarking on a treasure hunt. Each switch is an opportunity to unearth a financial gem. Your resume becomes rich with diverse experiences, and your bank account with far more than $20k- all of which you could save!
My last 2 job changes gave me more than $20k raises. So, changing jobs for me was choosing loyalty towards myself in a tactical career move.
The same happened with my students who in some cases doubled their incomes after working with me. In fact, here are some Salary Negotiation Scripts that you can use to increase your income.
Over the years I have found that finding jobs as a mid-senior professional, becomes challenging.
Which is why once upon a time a mentor told me, “Never stop looking” and that it is recommended to go change your job every three to four years to keep growing financially.
2. Diversifying Your Income: Start a Side Hustle
Let's talk about another power move for your earnings: starting a side hustle.
If getting more money through the door is your primary objective, consider exploring side hustles. Get creative and find something you enjoy doing on the side that can bring in extra income.
Short term side hustles: You could think of a side hustle like taking on a part-time job. It could be picking up extra shifts at your favorite coffee shop or mowing lawns, delivering meals with Uber Eats, or driving for Uber. The idea is to add cash to your paycheck.
Long term side hustles: If you are a creative, and are looking at long term money making, you could explore your creative side. This could be anything from selling stuff on Etsy to starting a blog or YouTube Channel. It's about slowly turning your passion into a paycheck.
Side Hustles vs. Businesses: Side hustles are typically solopreneur businesses—they bring in money, and you keep all the profits. However, you work harder and perhaps end up working for lower wages than many. On the flip side, businesses are like forming a full-fledged band. Sure, there are profits, but you also reinvest a portion to make the business grow. Whether you want a side hustle or a business truly depends on your life situation. But if earning $20k fast in a year is the objective you are optimizing, I would encourage you to think more side hustle and less business in the short term.
Aspect | Side Hustle | Business |
Objective | Earn extra along with the primary job. | Full time commitment with the goal of scaling. |
Time Commitment | Typically requires fewer hours/week. | May demand full time engagement and flexibility. |
Risk | Lower risk, generally started as a passion project. | Higher risk. |
Profit | Directly earned by the individual. | Profits may take time to materialize especially in the initial stage. |
Scale | There may be an upper limit to growth. | There is a higher potential for growth. |
Ownership | Sole ownership. | Ownership may be shared and profits may be reinvested. |
Exit Strategy | Easier to discontinue. | Exiting can be a complex process and may involve selling the business. |
Example | Selling crafts online. | Opening a restaurant. |
Side hustles are generally something you do to get more money through the door immediately, as you build them on the side, while businesses are something you build, arguably as the main thing as opposed to the side thing.
Let's say your side hustle is selling homemade cookies. You make the dough, literally and figuratively. With each batch sold, you pocket the entire amount. Now, imagine expanding this into a bakery business. Yes, you're still making dough (literally), but you're also investing some of it back into the bakery—buying better equipment, maybe hiring a helper.
So, side hustles are your solo gigs, bringing in quick cash. Just remember, businesses are the bands—long-term commitments that require both passion and reinvestment. It's all about finding that harmony between extra income and strategic growth.
3. Avoid Lifestyle Inflation
Earning more money is not the only answer to saving more. If it was, we wouldn’t have broke celebrities and lottery winners.
Saving $20k a year without cutting back on spending also means that you are saving the additional income made with the raise and side hustle. Most people will immediately adjust their lifestyle and spending to match their new income. Which is where they fall foul! You want to steer clear of lifestyle inflation. This is no magic trick; it's a methodical approach to ensure that your finances are in hand.
The Raise Conundrum: Congratulations, you've secured that raise or switched to a higher-paying job. Now, the challenge—don’t let this newfound financial current carry you away entirely. Instead of succumbing to the temptation of spending every extra dime, consider spending more deliberately.
When I get a raise, the first thing I do is to reward myself- whether that be buying myself a new coat or a piece of jewelry or in my case, an expensive educational programme. With the reward out of the way, I increased my savings by about 80% of the increment I received. The 20% that remains is where I find my play.
Becoming Spend Aware: The 20% that remains is like I said, where I find my play.
I find things that interest and inspire me. I love fragrances. So I might increase my spending on candles and incense sticks. Someone else might consider spending on luxury handbags. It’s about knowing yourself so well that you feel aligned and in tune with your spending choices.
The Automation Advantage: Automation is your financial ally. It’s akin to having a reliable assistant who ensures you don't exhaust all your increased earnings. Configure an automatic transfer to your savings account. This is the disciplined guard ensuring a portion of your income finds its way to a secure reserve every month without fail. So considering you’ve your credit card and other high interest loans paid off, consider automating your bank account to save $1670 every month as soon as salary hits your account. Of course you can do this through your 401k and Roth IRA in the US and through your Pension and ISA in the UK.
Guilt-Free Spending: The brilliance of this strategy lies in guilt-free saving. It's not about stifling your lifestyle; it’s about enhancing it wisely. Your spending board and your savings board operate in harmony, making sure that you are saving enough for the future while enjoying today.
Effectively, as you experience a salary uptick, allocate a fraction to elevate your lifestyle, and seamlessly direct another fraction to your savings, thereby fortifying your financial foundation.
It can be the quiet yet efficient way to reach your financial goals. By automating your money to go into a savings account directly, you can save more without feeling guilty about spending what's left.
Conclusion
Saving $20,000 more every year without sacrificing your spending is simple, but it's not necessarily easy. It might seem daunting, but it's entirely feasible with the right strategy and support.
This is exactly what we cover in the Six Figure Club, where you can meet like minded peers who are on the same financial path as you. And if you don’t feel ready yet, that’s okay- grab the free salary negotiation scripts for your next job change and let me know once you have used them!
