3 Steps To Increasing Your Income

Most accountants, financial planners, wealth-building experts and real friends agree that there are really only three ways to increase your income. You can either:

1. Increase your revenue (make more money),or
2. Decrease your expenses (spend less money), or
3. Do both 1 and 2

However, what is not so obvious are the words that should always follow these income-increasing statements. Accountants, financial planners and wealth-building experts are often so close to these principles that they assume we all know them to be true. They also tend to believe that everyone , not particularly a woman, has the necessary discipline and patience to automatically make them happen. Here are the reality-based revised versions of the statements that, although might not be as easy to relate to, really make more sense and, if you follow them to the letter, will help keep you on track. If you want to increase your income you must either:

1. Increase your revenue (and at the same time keep your expenses the same or less than before) , or
2. Decrease your expenses (and at the same time maintain or increase your revenue), or
3. 3. Do both 1 and 2

One version of Parkinson’s Law is that “expenses rise to meet income.” Put another way: “The more you make, the more you spend.” If you truly want to increase your income, it is important to maintain the same, or even a scaled-down, style of living for a period of time.

For example, if you make $45,000.00 per year and receive an annual raise of 10%, you gain an additional $4500.00 per year ($375.00 per month) for a new total of $49,500.00. It is awfully tempting to spend this extra $4500.00, rather than invest or save it. In addition, it is easy to talk yourself into upgrading your lifestyle by trading up for a more expensive car, taking an unplanned vacation, shop online for that much talked about gadget or some other deserved reward. After all, you just increased your income by $375.00 per month. Right? Wrong if you spend it!

If you spend the extra money, you have not really increased your income at all. In fact, if you spend it and then take added taxes and other liabilities into account, you may actually have less income than you had before the raise! Weird, huh?

The point here is that it’s not just about making more money. It’s about what you do with the extra money that determines whether or not you have truly increased your income. The reverse is also true. Let’s say that instead of the 10% raise, you get no raise at all. But, you decide to raise your income by cutting expenses. If you find a way to cut your expenses by 10%, you actually are gaining over $375.00 per month. If you are able to cut your expenses by $4500.00 per year, in reality, you just increased your annual income by 10%. Weird again, but true.

Your desire, ability and willingness to both cut expenses and increase revenue will determine how fast and how much your income will jump. It’s a powerful combination, and this is the secret that most wealthy people use all the time. The usual color of money is green, so refresh your financial gain by following these eco-friendly(economically friendly) steps.

Get on the Right Financial Track by Tracking Your Expenses

We keep track of our expenses because things add up, sometimes in surprising ways. To make significant changes in your spending habits, you need to know your outflow or expenditure score. Record-keeping enables you to spot that all-important “big picture”: exactly how much you spend, and on what, as well as how it swings over time. If you can’t trace your expenses, making changes in your habits will be fairly jumbled. You might strike on something that will save you a lot of money, or you might not. You might cut down expenses a lot in one area, only to spend more in another area without realizing it. On the other hand, if you do know where your money goes, you can target those areas that need work the most, and you can make good decisions about how to spend your money. Often, your assumptions will be wrong.

Whether you earn much or just enough, the same principle applies. We frequently commit the error of considering each expense in isolation, deeming it worthy, and moving on… only to find that somehow there seem to be more worthy expenses than there’s money to pay for them. The technique is to look at the big picture and the real one…

How to track your expenses

Let’s fire up with the traditional method of record-keeping, and suppose that if you’re a computer geek, you’ll settle toward software later on. For the time being, keep it straightforward!

I suggest purchasing a small, cute or manly notebook. Why so? Because this is a constructive venture; strengthen it by using an nice-looking notebook, one that says “I’m doing a good thing for my life!” when you look at it.

For daily expenses, you can either write everything down in your notebook right away, in which case you need to carry your notebook with you, or you can save the receipts from your purchases and then use those receipts in the next step. But if you do the receipts-saving method, make sure you actually get a receipt for everything, and that you actually do save them.
Once you have gathered enough information to start looking at the big picture – and this could be after as little as a week or two, if you’re eager to get started – then start categorizing the expenses and adding up the totals. To do this, you’ll need not only your daily record of purchases, but also any credit card bills, utility bills, checkbook register and any other bills that you have paid.

Keep in mind, be honest, be detailed, and be prepared to be surprised.

Hidden Expenses

Jotting down even the little bitty expenses is significant, because if you’re not sure where your money is going, it’s often going to what I call hidden expenses: ones that are small enough that ignore them.

The hidden purchases usually fall into one of three types:

• impulse buys
• Low-cost purchases
• part of a routine or habit

Impulse buys often don’t get noticed because we don’t tend to plan for them: the CD on sale, the chocolate bar at the drug store. Even when they’re expensive, the fact that they seem spontaneous somehow tends to sabotage our rational spending: we justify the purchase as being exceptional. Even impulse buying often falls into some sort of pattern overall, though.

Low-cost items are another type of purchase that tends to fall under the radar. Something that only costs a dollar or two, like a cup of coffee or a little knick-knack, seem almost too small to be worth tracking. Except that little items add up to bigger totals. If you let a $1 purchase slip by every day without thinking about it, by the end of the year you would have let $365 drift away without knowing where it went. I bet you’d be interested in keeping track of the $365 if it were given to you all at once!

Purchases that are part of a routine are often the hardest to track, but in many ways the most important. These are purchases that we don’t even think about, but they can account for a lot of money: buying sodas from the soda machine at work, popcorn at the movie theater, coffee and a magazine on the way to work in the morning. Each purchase individually may not be expensive, but they add up, particularly since you may make these purchases frequently. The fortunate thing about this kind of spending is that it’s possible to change your routine slightly and eliminate a lot of these expenses: bringing a snack from home to work instead of plugging money into the vending machine, for instance.
In the long run

Once you’ve gotten a clear picture of your finances over the course of a year or so, you may or may not want to stick with the “record every penny” method, depending on your personal style, I still recommend that you keep a reasonably exhaustive record, so that you can keep track of changes in your spending… are expenses in one category starting to creep up again? Recordkeeping also ties in well with budgeting, so it’s a win-win situation to keep track of your expenses. Good record keeping is essential to your financial survival.