Why Increasing Your Income Is Better Than Increasing Your Savings Rate

For those in the financial independence retire early mindset, we all know that your savings rate is extremely important in growing long-term wealth. But, there is a better, faster way to reach early retirement.

Your savings rate and how much you can save is one of the most important things to do on your journey to FIRE. Your savings will account for the largest portion of your portfolio growth. Investment returns only begin to take over once your portfolio is very large (hundreds of thousands).

Saving is of course important, but the problem with saving is that there is a limit to how much you can save.

If you make $50,000 a year, and lets say you can save a maximum of 50% a year, you’ve saved $25,000. That’s a solid $250,000 saved over 10 years.

That’s an amazing result! But, to be honest, it could be a lot higher.

The problem here is the maximum amount you can save is due to your income, if you could always save 50% but instead made $75k or $100k a year, your savings will skyrocket, and the only thing you’ve changed is how much income you make.

We need to shift our mindset from ‘how much can I save?’ to ‘how much can I make?’.

Saving is limited by millions of things in our lives, however, your level of income is theoretically limitless.

Rather than focusing on saving every penny, I think it’s important to spend some time thinking how we can create more income for ourselves. This can be done in a variety of ways:

  1. Get promoted at your current job and get a pay rise.
  2. Apply for a higher paying position (either the same job or a promotion).
  3. Earn extra money through a side hustle / income stream / business (this can be anything you want) (most ideal).
  4. Work a second/third/fourth job (not ideal).

By earning extra income, we can fast track our journey towards financial independence.

If you could earn $100k per year, and could still save 50%, then you would have $50,000 each year, and $500,000 over 10 years.

But imagine if you could earn $125k, $150k, and more? And even then, you will most likely be able to save more than 50% a year.


It’s something that I’ve been focusing on over the past year. I’m experimenting with different platforms, mediums (pun definitely intended), side hustles, businesses, and whatever else I can do to become financially independent.

My savings rate is around 40%, and while I could work to increase that, I just honestly don’t want to. My only option to retire even earlier is to create wealth and create more value outside of my 9–5.

Nathan

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