How was your week? After reading my last post, have you started assessing your level of spending? Have you started tracking every expense? Have you made a few phone calls to get better prices? I’m very curious about your journey!
Now that we have clearly understood the importance of lowering expenses, it becomes relevant to think about increasing our income. Because as soon as our expenses are optimized, the extra income will only increase our savings rate!
Of course, that doesn’t mean you can’t save on smaller wages. Again, it all starts with lowering your expenses.
For example, here is my annual income at the end of each year I’ve worked (information obtained from the CRA). This includes the years I worked part-time work during my studies (2009-2014) until now:
Between getting my college degree in the spring of 2010 and starting my bachelor’s degree in the fall of 2011, I took a year off to put money aside. Result: I saved more than $10,000. You’ll notice that despite low income, this is a significant savings rate.
In addition, considering all 12 years in the workforce, my average annual salary rounds up to $43,152, which is still below the average wage in Quebec. And yet, as of today, I have over $100,000 in investments. Of course some of it comes from investment returns, but I estimate $70,000 came directly from my savings. The ability to save clearly does not rely solely on income.
In my previous post, I talked about people increasing their spending at the same rate as their income, thus never having any money to spare. That is what we must avoid at all costs. So, yes, increasing our income can be a very powerful tool in achieving our goals, but only when we are able to avoid lifestyle inflation. Otherwise, it’s a fool’s errand.
How to Do It
Increasing your income is easier said than done, you might say. Indeed, it’s nice on paper. But how do we go about it? Like anything else, it takes hard work, determination and even courage.
Here are some examples of how to get more income, in order to increase your savings rate.
- Ask for a raise
- Get a promotion
- Change employer
- Get a second job
- Work overtime
- Sell belongings
- Start your own business
- Respond to paid surveys (through Swagbucks)
- Become a mystery shopper
- Rent a room in your home
- Participate in clinical trials
Have you ever implemented any of these strategies? Of course, I’m not saying you need to try all of them. Just remember that every action matters.
How I Increased my Income
As you’ve seen above, my income has steadily increased over the years.
The large variations can mostly be explained by changing employers. Indeed, in 2014, after four years working for the same company, I made the leap to work for a competitor for a better salary.
Then, after four years of stagnating for that employer, with no hope of advancement on the horizon (I was unionized), I made the leap again in 2018. I did it for roughly the same salary at the time, but the prospects for short-term advancement were excellent. In fact, it only took 9 months for me to be promoted, which explains the increase in 2019. The 2020 increase, on the other hand, is thanks to a raise that I simply asked for.
My journey so far leads me to make two observations. The first one being:
- If you do not ask, the answer will always be no. Go ask for that raise or that promotion you think you deserve! The answer might surprise you. Who wouldn’t be happy to have more money for the same job or hours? Worst-case scenario: you’ll be turned down. And if that’s the case, well, maybe it’ll make you think about your future working for this employer. Ditto for those in a unionized environment who have little or no prospect of advancement. Which brings me to my second observation:
- Loyalty benefits only the employer. If you’re dissatisfied with your career working for a company, or don’t feel appreciated or fairly paid, look elsewhere! Again, you might be surprised at what the competition is willing to offer to have you.
In addition to these changes, I always let my bosses know that I am open to working overtime. It is not always possible, but when the opportunity is there, I seize it. Working for 1.5 times my regular rate? Oh, hell yes!
I’ve also been doing paid surveys through Swagbucks since 2018, now and then. It’s not big money, but I’ve still racked up over $1,600 in Amazon gift cards since then. It may not sound like much, but it is $1,600 that I did not have to draw from my paychecks. 🙂
Considering that I am single without children, I have no shortage of free time. I could easily find a second job to increase my income even more. There are plenty of options in the labour shortage we are currently experiencing. It could be as simple as putting my car to use and delivering food via UberEats or Doordash.
I’m aware of my options, but sometimes it’s hard to choose to work more, instead of knitting in front of a Star Trek episode. 🙂
It all comes down to choices. 😉
Do Not Overlook Tax Optimization
Increasing gross income is good, but increasing net income is even better. No one wants to see their extra income go up in smoke because of taxes. How many times have we heard a colleague refuse to work overtime because they don’t want to pay extra taxes? Too bad for them. This is where it becomes relevant to take advantage of the various deductions and tax credits offered to you.
The most obvious deduction (and relevant in our path to financial independence) are the RRSP contributions. Each amount deposited into an RRSP will reduce your taxable income. This why you end up with a nice tax refund in April. If you also contribute to a worker’s fund RRSP, such as FTQ or Fondaction, you’d also receive a 30% or 35% tax credit.
For people with lower income, reducing taxable income could increase access to various credits such as the federal GST/HST Credit and the provincial Solidarity Tax Credit.
Even better for families: reducing taxable income could increase the various tax-free family allowances. This topic being far from my expertise, I’d rather refer you to an expert in the field, the author of the blog called Se payer en premier, who describes his strategy in this article (French only). I also invite you to read chapter 10 entitled “Québec, le paradis fiscal des familles” (Quebec, Tax Haven for Families) in Liberté 45 by Pierre-Yves McSween (French only too, but hopefully there will be an English version soon enough). It almost makes me want to have children. 😉
In short, please don’t leave money on the table when it comes to filing your taxes. Knowledge is power. Find out about the various credits and deductions that apply to your situation to maximize your net income and minimize your tax bill, especially if you do your own taxes.
Bring Home the Bacon
Those were only just a few examples to help you make an extra buck. In my opinion, with an optimized level of spending, you are already in an excellent position to start saving. If you manage to get a little more income here and there, it’s a bonus!
On the other hand, this step has an undeniable advantage over lowering expenses. You understand that you can lower expenses only to a certain extent. On the other hand, increasing income has no limit. It all depends on the effort you are willing to make.
I’m already looking forward to writing about the next step. Now that we have lowered our expenses and increased our income, we will address the power of savings in our goal of financial independence. In the meantime, I invite you to calculate your current savings rate, or the one you intend to achieve once all the right strategies are in place. We’ll talk about it next week. 😉
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