Create Your Own Raise

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If you're one of the many who hasn't gotten a raise since 2007, perhaps you need to create your own raise. (See also: Replacing a Crappy Job)

It's a simple concept — cutting your expenses by a few percent is effectively the same as boosting your income by a few percent. In fact, it's better, because you'd have to pay taxes on any extra income, while reducing your spending is tax-free. (In fact, reducing your spending often means you pay less tax — less sales and excise taxes.)

Of course most people have already thought of this and have already cut their spending as much as they figure they can without cutting their standard of living. Most people are wrong.

You can verify that with this simple two-step process.

1. Track Your Spending

Unless you've been tracking your spending, you almost certainly have no idea where a big chunk of your spending is going. I can just about guarantee that if you go through the exercise of tracking your spending, you'll discover that 3%, 5%, 7% of your money is leaking away. Maybe it's going for fancy coffee drinks or your bar tab or workday lunches or the office vending machines or groceries that spoil before they get eaten. I don't know — but unless you're tracking your spending, you don't know either.

I've got a post that's on topic — Track Your Spending. Or Not.

2. Identify Some Economizations

If you were trying to completely remake your finances, you'd have to look at the top of your spending — at the big items such as mortgage or rent, car payment, stuff like that. But let's put those aside for a bit. You're just looking to create a raise — a raise that would likely have been only 3% or 4%, if you'd gotten one.

When all you need to find is 3% or 4%, there's a lot of room at the bottom — in the small expenses and especially among your little luxuries

If your income has been stagnant for a few years, you probably don't feel like you've got many luxuries any more — because you haven't added any new ones in a while, and you got used to the old ones long ago.

To that end, I'd like to suggest a little mental trick for identifying your luxuries — pretend you're going through someone else's budget.

Imagine an acquaintance has come to you for help making a budget. Imagine that they've been living a bit beyond their means. Imagine that, even though you're pretty sure that they don't make any more money than you, you've noticed that they've been buying stuff that you can't afford. Imagine that the whole thing has caught up with them, and they desperately need to economize.

Then look at your notes on where your money's been going and tell your "acquaintance" where they might economize.

Of course, they're no doubt strongly wedded to their luxuries, just like you are to yours, but so what? They need to economize, and you're there to help.

I made a similar suggestion in this post — On Choosing and Defending Your Luxuries.

Here are a few thoughts on where to look:

• What little expenses do you pay cash for (or casually swipe a debit card for)? If you could cut just a dollar or two per day, you're instantly saving hundreds of dollars a year.
   
• What expenses are just old habits? I once got into the habit of having dinner out once a week, because I had a class that kept me from going home at dinnertime. But I continued even after the class ended, because I enjoyed it. I only cut it when I did the math and realized what the expense added up to.
   
• Especially look at your recurring expenses. Could you raise a deductible on your insurance? Go to a cheaper plan for your cell phone or internet service? Find a less expensive fitness center? Cut your utility bill by adjusting your thermostat and switching off things you're not using?

Unless you've gone through this exercise already this year, I have no doubt you can cobble together a few little cuts that will add up to a 3%, 4%, or even 5% raise.

Next Year's Raise

Hopefully the economy will be better next year, and you'll get a real raise. But we've been hoping that for a while now. Just in case it doesn't work out that way, take a step now toward creating next year's raise.

Specifically, go back to those big things that I suggested you postpone taking a look at.

The reason I had you start with the small things is that saving money on the big things (things like housing and transportation) usually requires a long lead time — but that's okay; we've already taken care of this year. Now you're looking ahead to next year. You have the necessary long lead time.

By looking for economizations among the big things, I'm sure you can create your next year's raise.