What the Data Says About How to Save More Money

What if I told you there was a way to spend more money, while still increasing your save rate?

There is. It’s called “increasing your income.”

Here’s the thing: This ‘advice’ is usually harder to swallow, because it’s not immediately actionable. It’s not able to be deployed identically by every single person reading this blog post in the same way that, “Cancel your Hulu subscription and negotiate your WiFi bill,” is, and for that reason, I think we tend to talk about it less than we should.

The way a therapist increases her income is going to be different than the way that a marketing professional increases her income. It’s useful in directionality, but frankly, requires more self-awareness and hard work than most other personal finance advice.

But for the majority of people (read: the lowest earning 40% of Americans), one of the most impactful financial moves they could make isn’t learning how to invest more strategically, cutting back on costs, or employing a cash envelope budgeting system: It’s earning more money.

As a (previously) self-proclaimed Frugal Frannie, I would’ve scoffed at this advice: “Oh, just earn more money? Sure, Janet, thanks for the tip! I’ll just go tell my boss I need a 25% raise! F*** off, I’m canceling my hair appointment and calling it a day.”

In fact, I’ve even written in the past about why spending less actually matters more than earning more: And while I think the logic involved holds steady, it’s inherently narrow in its usefulness. Why? Because there’s a true lower limit to the amount you can cut back, and oftentimes that “cutting back” ends up meaning removing all the small, discretionary pleasures from life that (existential crisis warning) make it worth living.

I’m going out on a limb here: The best way to save more is to earn more, and today, I’m going to show you why – and how.

The best determinant of save rate is income

This isn’t just my opinion: It’s supported by the data. Nick Maggiulli, the author of Just Keep Buying and the blogger behind Of Dollars and Data, shares this:

“Going back to 1984, the bottom 20% of earners have consistently spent more than 100% of their take-home pay on [food, healthcare, housing and transportation],” (Just Keep Buying, pp. 27).

If you’re anything like I used to be, you’re probably looking at that statistic and saying, “Then just live somewhere cheaper or eat less!” Here are the averages:

Food: $367

Healthcare: $238

Housing: $960

Transportation: $382

Not exactly excessive, if you ask me, and – again, according to the data – this is approx. $900 more than they earn in a given month. They’d have to cut their spending in half to save anything.

When we look at the next 20% on the income ladder, Maggiulli finds something similar: Those in the 20th to 40th percentile earn 200% more than those in the lowest 20%, but their spending is only about 40% higher.

His conclusion is clear: When you look at the data, the best determinant of save rate is income. The more you earn, the more you save.

Those in the highest 20% of earners save approx. 50% of their income (for the record, the “highest 20% of earners” are those who earn an average of $174,777 after taxes as of 2019).

How to increase your income

I’m going to play my “personal finance blogger anecdote” card and point to an example from my own life.

When I graduated from a state school with a public relations degree, I figured I’d make anywhere between $38,000 and $45,000 per year. I was lucky: I ended up getting a job in marketing in a big, Fortune 100 company, and my starting salary was $52,000.

In the years that followed, I received a series of small raises: $53,000, then $60,000, then $66,000… By my company’s standards, they were really strong increases, but I was still (almost by definition) a very average earner: The median income in 2018 was $64,324, according to Statista.

In order to get ahead financially, I made a lot of (decently frugal) choices:

• Contributing 10% to my 401(k) from day one of employment

• Always living with roommates in buildings that weren’t as new or fancy as where my friends lived

• Buying a cheaper car than I could afford

• Resisting the urge to spend a lot of money on the weekends at restaurants or bars

After I had my financial awakening, my monthly income after taxes and 401(k) contributions was around $3,000, and I probably saved roughly $1,000 of it, give or take.

This was effective: By the time I was 25, between my 401(k) and other investment accounts, I had about $100,000. Not bad for four years of work, huh? The bull market and employer match of 10% didn’t hurt, either.

The key to growing that first $100,000 with an average income? Automating my investment contributions. Roboadvisors make this insanely easy—you simply answer a few questions about what you’re investing for and set up a cash transfer from your checking account.

For my own brokerage accounts at the time, I set up several transfers to my investments: $250 every two weeks (after pay day) to my Roth IRA, and another $300 or so every two weeks (again, after pay day) to my taxable brokerage account. The money left my checking account almost as soon as it arrived, so there was never the temptation to spend it instead. Slow and steady won the race.

But then something amazing happened: I increased my income.

From late 2020 to early 2022, I started my side business (this very blog and brand!) and switched companies.

In a series of relatively simple moves, I went from earning $66,000 per year to over $300,000 between my full-time wages and business income.

I know, I know: Insert record scratch here. You did what?

Let’s step back:

Increasing my full-time income

I loved the company I worked for: It was an airline known for having an excellent culture and great benefits. But during the pandemic, I realized something scary: Working in travel and tourism might be a dicey path over the next few years as the world rebounded from a pandemic.

Still, the idea of leaving wasn’t all that appealing (because I loved this company and my team), but the writing was on the wall for me. I would be destined to continue getting small salary bumps each year, slowly working my way up a corporate ladder with cards that were stacked against my industry. I had a goal of earning $72,000 by spring 2020, and… well, we all know what likely happened to that promotion cycle at companies across the globe.

I didn’t want to leave entirely, but I started looking around at the jobs that were being posted on LinkedIn. They (mostly) had one thing in common: They were all in tech.

I spent a weekend updating my LinkedIn, something I had ignored for the last three years of my career since I figured I’d retire from the airline someday. I had no intention of going anywhere else.

Instead of “marketing copywriter” as my title, I changed it to more accurately reflect what I had been doing in my company for the last 18 months: UX writing.

I added a few metrics and keywords, and let it ride. A few months later, I got a message from a recruiter for a big tech company trying to find someone to do some hourly project work. I went through the process and ended up getting the gig, so I did that on the side. It paid a lot better than my full-time job did. (This was probably the busiest period of my adult life, and I worked very long hours during this transition phase.)

Now, I had two important things on my résumé: UX writing experience and tech experience.

I did this for about a year before a FAANG recruiter reached out (Facebook, Apple, Amazon, Netflix, Google) after I had updated my LinkedIn appropriately, so I went through their process. I got the job.

My new total compensation? $115,000 base, $11,500 cash bonus, $12,500 of RSUs, and $10,250 in a 401(k) match. About $150,000.

Switching industries

I didn’t enter the pandemic with any intention of changing jobs, but when it became clear my income was going to be stagnant for at least a year or two during my twenties (my grind ‘n hustle years!), I knew I had to do something. I had always been vaguely interested in switching to tech, but didn’t have a great strategy for getting there – that’s where the hourly project work came in. It was a bridge.

Another thing that helped me during this time was having a side hustle – I was a fitness instructor for the majority of my early working years, which took up a lot of time before and after work. I didn’t realize it at the time, but it was great training for building a business – it taught me how to wake up early, manage my time, and – in a lot of ways – lead.

While even my best months from fitness instruction only earned around $1,000 extra, it planted a seed: “Wait, I’m not limited by the income my W2 employer is willing to pay me.”

I realized having an extra $1,000 in my pocket every month enabled me to save more and spend more, something that felt like the best of both worlds.

Building a business

This is pretty meta, huh?

Reading about Money with Katie on Money with Katie?

Here’s the thing: If you can pull off the “blogging/podcasting/social media as a source of income” thing, it can be pretty limitless in its potential.

That said, there’s one crucial piece of advice I need to impart here: I started Money with Katie because I wanted to create something I was proud of and write about money on the internet, not because I thought it was going to be super profitable.

I remember trying to leverage it as a “business” to get a business credit card (about which I wrote a blog post! See? Meta!) and – when the guy asked me what I expected my “profits” to be – I estimated a couple thousand dollars per year, and felt like I was lying through my teeth. “How the hell would I even make $1,000/year doing this?” I wondered at the time.

This is why it’s funny when people ask about how I had the discipline and time management to build Money with Katie in my free time while working full-time (and teaching fitness, and doing part-time hourly work for the tech company). The answer? I just liked doing it. It was my favorite hobby. It was the thing I looked forward to. It didn’t feel like work, so it was easy to do before or after a long day.

Now that it’s a legitimate, revenue-generating business, there are elements that certainly feel like work. But in general, I think I got really lucky that the thing I liked to do ended up being the thing that increased my income the most. It was an accident.

This is why my advice about increasing your income might surprise you:

Unless you have a business idea that feels more like a hobby than work, it’s probably more advantageous to focus on building full-time income instead

A lot of personal finance advice (including my own) praises the side hustle as the ultimate Millennial tool in the tool kit – stagnant wages, an insane housing market, and 7% inflation got you down? No worries! Just start a side hustle!

It obviously can work (this blog is proof of that), but I find the side hustle advice often stresses most people out: “You mean I have to work my soul-sucking full-time job AND come home after work to work more on something else? No, thanks.”

And look, I don’t blame them: The side hustle is not a silver bullet. I’ve definitely had side hustles in the past that felt more like charity work than anything else, and those are incredibly draining.

If you have a business idea that you’d do for free anyway, maybe it’s worth a shot: After all, even if it doesn’t end up making any money, at least you had fun doing it, right?!

But if the suggestion to get a side hustle feels more like an invitation to an anesthesia-free colonoscopy than a viable path forward, my suggestion is to ignore it altogether.

Yep, ignore it.

Instead, use the time and energy you would’ve reluctantly invested in making money “on the side” and instead use it to get a full-time job that pays more.

According to Zippia, the average increase in salary from changing companies is 14.8%. What could you do with an additional 15% of income?

Whether it’s learning a new skill or getting a certification that you can leverage into a higher paying role in your current company (which is sometimes easier, since you’ve likely got an existing reputation and network of advocates inside to help you) or laying the foundation to make the switch somewhere else,  it’s highly unlikely that your current salary is the most you could make with your current skill set and opportunities.

Why the advice to earn more money instead of cut back more can be unpopular

In short, it takes time, and it’s not always easy to know if you’re “doing it right,” and without a solid savings strategy, it can also lead to pissing away all your gains.

Whether you’re going the ‘start my own business’ route, learning a new skill that’ll help you level up at your existing company, or switching companies and working elsewhere, it’s not a change you can make in a day like canceling Netflix. It doesn’t feel as immediately satisfying as swearing off restaurants or shopping.

But it works, and frankly, it works a lot better than just about everything else, especially cutting discretionary spending.

To circle back to my own anecdote, remember how I told you that focusing on frugality helped me save $100,000 in four years?

Increasing my income helped me grow my net worth by another $500,000 in two.

My net worth in September 2020 – right before I took on the hourly tech job and started really focusing on Money with Katie on the side – was $115,000. My net worth in February 2022 (about 18 months later) was about $600,000.

Besides finding ways to earn more in that time, I:

• Rented a house that costs $3,000/mo., about twice as much as my old apartment

• Started getting monthly facials and buying quality skincare products

• Hired out both cleaning and cooking (incremental monthly expenses of around $1,500/mo.)

I spent more, and still ended up saving substantially more than I had been before – all because I increased my income. Both my lifestyle and my save rate improved thanks to earning more.