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Old 04-26-2011, 09:15 PM   #1
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Want to ER earlier? Earn more.

While ER is not the subject of this piece, the author argues that there are two sides of the gaining wealth coin - savings & earnings. And the financial press pays scant attention to the latter.

Ramit Sethi on Increasing Your Earning Power - NYTimes.com

nytimes.com may require a free registration.
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Old 04-27-2011, 12:37 AM   #2
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I like the first response to his post:
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Are you serious? When do you expect people to sleep? And play? And just sit around and do nothing (which is one of the most important things a person can do for their mental health, in my opinion)? Americans are already the most-overworked people on the planet, and you recommend that we work more? For what? To pay for cable and lattes? When do we get to stop working and enjoy our lives? Jesus, people, don't work more. Just buy less. Live beneath your means. Spend time with the people you care about. That's all that matters in the end. It really is as simple as that.
This reminds me of Google's 20% policy or Charlie Munger's advice to spend an extra hour a workday working for yourself. If nothing else it'll make you a more efficient manager of your own time.

But I bet this article would've had quite a different reception if he tried to pull it off in late 2008-early 2009. I wonder if he wrote it between 9-10 PM after spending four hours of quality time with his own family.

I think the reason the "raise your income" side of LBYM never gets much airtime is because it's almost always easier to cut spending than to raise earnings. You don't get paid for doing for yourself, but you always save money that way and you don't have to invoice delinquent clients. You don't even have to go looking for clients.

Having said that, when our 18-year-old exceeds her budget for the nth time then we have the "cut your expenses or get a really good job" conversation for the (n+1)th time. Yet every time we've had this conversation she's managed to amaze me with her ability to go out and scare up more income. Her latest "achievement" was a lightning-bolt-from-the-sky letter awarding her a $250 one-time scholarship check from one of the college's endowments. She has no idea how it happened but it's possible that one of the NROTC staff nominated her for it. I can't argue about an approach that seems to be working for her, and at least in the meantime she's heard plenty of tutorials about cutting expenses.
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Old 04-27-2011, 04:35 AM   #3
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For a different perspective: Amazon.com: Slack: Getting Past Burnout, Busywork, and the Myth of Total Efficiency (9780767907699): Tom DeMarco: Books

The basic premise is that working 24x7 under constant pressure kills creativity and productivity. Taking time out to just chill is a smarter and more effective way of working.

True story: I lent my copy to my boss - he claims he lost it before he had time to read it.
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Old 04-27-2011, 07:00 AM   #4
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I think we do not talk about the earnings side partially because there is a tacit assumption that everyone is already getting all they can. plus adding to your earnings power is painful and risky. The things I did that bumped up my income generation capacity the most required great sacrifices on my part, and they might not have panned out. It is less risky to cut expenses.
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Old 04-27-2011, 07:11 AM   #5
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It is indisputable that high earnings help achieve financial independence. Saving 20%, or 50%, or whatever, of net income gets increasingly easier as your income rises above providing basic necessities.

And I agree that increasing your earnings is more difficult than cutting out the afternoon latte; but that is because the benefits are so much greater (cutting that afternoon latte saves $750 per year, an amount you might be able to garner by simply asking for a raise - something most folks surprisingly never do). Besides, there are a lot of things people can do to increase their earnings potential that don't necessarily involve getting a second job. Moving to a competitor often yields a pay increase. Moving out of a one-employer town to where more jobs are can help too. As does upgrading skills, changing professions, or even making an effort to be better at office politics.

The question for anything worth having is always the same: what are you willing to do to get it? ER is no different.
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Old 04-27-2011, 09:50 AM   #6
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I think we do not talk about the earnings side partially because there is a tacit assumption that everyone is already getting all they can. plus adding to your earnings power is painful and risky. The things I did that bumped up my income generation capacity the most required great sacrifices on my part, and they might not have panned out. It is less risky to cut expenses.
+1. Not to mention 100% income tax free
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Old 04-27-2011, 09:56 AM   #7
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+1. Not to mention 100% income tax free
I think that's the key right there. Every dollar I save is a true dollar, but if I work more hours, get a part time job, etc, I'm only netting about 60 cents on the dollar. So I really have to make around $1.67, to get the same effect as saving a buck.
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Old 04-27-2011, 10:28 AM   #8
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Increasing earnings could be easier than reducing spending. Changing jobs could be a lot easier than changing your lifestyle.
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Old 04-27-2011, 10:43 AM   #9
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I think that's the key right there. Every dollar I save is a true dollar, but if I work more hours, get a part time job, etc, I'm only netting about 60 cents on the dollar. So I really have to make around $1.67, to get the same effect as saving a buck.
I like to think of it as you have plus add the fact that it is also one dollar less of income that I need to generate in retirement. So to me it is $55 less I need to earn for a 3% SWR! (your $1.67 plus [1/.03] adjusted for taxes). It makes me feel better every time I save $.
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Old 04-27-2011, 02:11 PM   #10
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Interesting topic. While I agree that it would generally be easier to save a dollar after tax at the margin than earn an extra dollar, there is a lot of room between a workaholic spendthrift and a miserly 9 to 5'er who tick's his calendar off for ER at age 42. I think one should try to balance productive effort, current consumption, and retirement planning. Depending on one's education, intelligence, ambition, luck, etc, a little more effort might sometimes result in a lot more assets at retirement. (did for me). The trick is to keep as many options open for as long as possible.
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Old 04-27-2011, 03:04 PM   #11
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I think one should try to balance productive effort, current consumption, and retirement planning.
Exactly. If I have two levers that I can pull to accelerate my speed toward an objective, why wouldn't I consider pulling them both? The other thing to consider is that one lever (savings) is inherently limited by the amount of income you make. Notwithstanding some funny math in an earlier thread, you can't save more than you earn. Meanwhile the the benefits of pulling the other lever are potentially unlimited - taxes or no taxes.
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Old 04-27-2011, 05:04 PM   #12
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Exactly. If I have two levers that I can pull to accelerate my speed toward an objective, why wouldn't I consider pulling them both? The other thing to consider is that one lever (savings) is inherently limited by the amount of income you make. Notwithstanding some funny math in an earlier thread, you can't save more than you earn. Meanwhile the the benefits of pulling the other lever are potentially unlimited - taxes or no taxes.
I agree. For us, maximizing earnings was probably as important as minimizing expenses to reach FIRE. By keeping our expenses low and increasing earnings over the years, our savings rate went from a low 30% to a high 75%. Unless you are extremely thrifty, a saving rate of 75% would be hard to achieve on a $50K income.
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Old 04-27-2011, 05:30 PM   #13
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... plus adding to your earnings power is painful and risky. The things I did that bumped up my income generation capacity the most required great sacrifices on my part....

Amen!

I made a number of educational and career decisions to boost my earnings. Sometimes individual decisions did not work out as well as I hoped.... But the general approach has made a big difference for me.
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Old 04-27-2011, 07:07 PM   #14
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I took a chance, changed careers, worked full time and studied evenings and weekends and got my income up to a few multiples of the median.

But, IMO, that was about it. I didn't see any way to predictably go higher than that. I maxed out my talents. Another step up the ladder would have required a different portfolio of talent. Or, I could have bought lottery tickets, but that doesn't count ...

I think lots of people are like that. They're wage earners. They see some incremental gains in their current careers, but the dramatic change it would take to get on another income ladder just doesn't seem to have a reliable payoff.

The article says you can earn more by working on the side. In most cases that requires marketing and most of us aren't marketers. All things considered, the hourly rate is probably a fraction of what we earn in our day jobs.

The article is basically an ad for a website with the obvious name "I Can Make You Rich". I'd like to see a statistical study on his successes.
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Old 04-27-2011, 09:15 PM   #15
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Joe Dominguez actually goes into a lot of detail about maximizing your earning potential in Your Money Or Your Life and has an interesting moral "take" on why you should try to earn as much as possible in order to retire earlier.
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Old 04-27-2011, 09:45 PM   #16
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I find that the press often equates savings with hardship. Save a $ - deny yourself something. With the mindset on this forum, I think that's only sometimes true.

Working to keep your skills & networking current to reduce your chances of being laid off, or increase your chances of finding a job quickly if you do, also counts, in my mind, as working to increase earnings (potential).

Increasing your earnings potential is more important early in careers. Like someone else said above, sometimes you reach your potential & there isn't much you can do to increase your earnings. But, you can always do thing to ensure the continuity of those earnings.
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Old 04-27-2011, 11:00 PM   #17
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Being self-employed, the more we decide to work, the more money we can make. It's always a balance though; you want to earn more so you can save, but you have to leave time to relax and have hobbies too.
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Old 04-28-2011, 12:40 AM   #18
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I worked full-time until 2001 when I switched to part-time. Then in 2008 I ERed.

I am not sure if working more would have enabled me to ER earlier. This is because any additional earnings in the part-time years, had I ERed in 2005 or 2006, for example, would have been offset by a reduction in the exploding value of my company stock in 2006-2008. Yes, I would have had a few more shares of said stock, but not too many.

By working part-time for those years, it enabled me to hang around a few years longer until my company stock was worth about $300k, the magic number which enabled me to leave in 2008. Simply being an employee, regarless of the weekly hours worked, made me eligible to retain the company stock I had mostly accumulated in my full-time years.

Had I worked full-time for fewer years, I would have been greatly unhappy even if I had lasted as far as 2005 or 2006. Working part-time for 7 years greatly eased my transition into ER in 2008.
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Old 04-28-2011, 07:38 AM   #19
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Reducing expenses is far more productive than increasing income. Because of marginal tax rates, $1 in expenses equals at least $1.33 or so (25% rate) in additional income. Cell phones, cable TV and eating out are major expense areas that offer lots of savings possibilities.

The calculation is not the cost of a starbucks coffee vs an hour worked, it's a lifetime of expensive coffee vs saving (and investing) that money.

He says
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Frugality is important - to a point. But after we cut back to a reasonable level, our biggest win will come from earning more money.
This may be true, but not by working nights doing "something you like or are good at". More likely, using night/weekends to learn and acquire skills and knowledge you don't have and that have value in the workforce.

Declining median wages over 10 years, flat over 20 years and declining earnings in the bottom quartile over 3 decades point to decaying skills or mismatch between the workforce skill profile and the labor market. This means the potential for skill improvement leading to higher incomes seems substantial.

Maximizing earning potential and living a frugal lifestyle each lead to financial independence, combined they also allow early retirement.
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