What's Better? To Cut Costs or Boost Income?

[Retired To Win]

Eighteen months ago, my baseline annual budget was $24,000. To have enough retirement capital to generate the income to fund that (at a 4% swr), I would have needed to get my retirement stash up to $600,000. Instead, I found ways to cut back my baseline budget (without sacrifice) by $6,000 a year. Based on the 4% swr, that lowered my needed baseline retirement stash from $600,000 to $450,000.

To me, that shows the tremendous power of cost cutting over income boosting.

Can you see that, too? Or is your game plan to build up your income-producing investments until they can fund your expense budget as it now stands?

[lorraineb]

In my opinion, it's always better to cut costs first. It usually takes much less time than earning money plus it's more valuable (since the savings is after tax while earnings is before tax). In most cases a combination of the two usually works best.

[kork13]

It is far better to reduce expenses than to increase income. Why? Taxes.

If you need an extra $1000/yr for health insurance costs (for example), you have 2 options: spend less & divert the savings to your healthcare costs; or earn/withdraw more. The former requires $1000/yr in reduced expenses. The latter (assuming a 25% tax bracket) requires $1250 in additional earnings/taxable withdrawals.

[rigz]

OP - if I'm understanding you correctly, you live on 18000 per year? Or just 1500 per month?!

[LivingAlmostLarge]

Cut costs period.

[marvholly]

Generally nothing in life is ALL A or ALL B.

Work on both.

[Augustine]

Generally nothing in life is ALL A or ALL B.

Work on both.

I agree. When you train yourself to avoid 'either or' thinking, you will find yourself coming up with extremely creative solutions to cut costs and boost your income at the same time.

[feh]

My goal is to have retirement accounts that allow us to keep our current lifestyle. That implies at least one vacation a year and other semi-luxuries.

We could reduce our budget to the point where we could've retired years ago, but I'm not interested in living that spartan of a lifestyle.

[Nika]

That really depends.

Boosting income is a more effective investment of time and energy than tracking your toilet paper or floss.

Income boost tends to be a trajectory, and it really adds up over the years, outpacing any savings on dental floss.

So if you are talking about cutting costs by doing hours of couponing and making your house look like a costco warehouse, that's one thing. If you are talking about little time investment/more mindfullness steps, such as never paying atm fees or only paying for cable channels you want, that is another matter.

[TheKayla]

I think it depends on each unique persons situation. Obviously, there are people out there that make above six figures, and are swimming in debt. Others seem to have tried to cut costs at every angle, and have little cash to treat themselves even once a month on something small, because they make minimum wage, or make little wage for their living area. Of course, its a balance of both in the end, but most certainly it takes looking at each one's situation.

[TheKayla]

That really depends.

Boosting income is a more effective investment of time and energy than tracking your toilet paper or floss.

This is true, I think when it gets to this level of cutting costs as a needed part of your finances -- you need more income obviously.

[Retired To Win]

My $18K Baseline Budget is Itemized in my Blog

OP - if I'm understanding you correctly, you live on 18000 per year? Or just 1500 per month?!

My baseline budget is $18,000 a year. The link to my detailed blog post on that topic is at the upper right of this forum reply.

[snafu]

I've always found it most cost efficient to avoid paying interest when possible or pay down car loans and mortgage as quickly as possible to keep interest cost as low as I can manage. I think my dad said something like ...'you may as well stand on the steps and burn $ 5. bills for the fun you get from paying interest.' Isn't it easier to cut baseline expenses than to increase employment income? In my experience, it takes a moderate amount of Risk and a lot of research and planning to grow passive income for those of us who are no where near an age to access retirement income. Given a different tax structure, it's just too costly to trigger capital gains to increase passive income.

I really like that 20/50/30 percent income split theory. If I want more stuff than that... I need to increase income - it's that simple. What's harder is to give up family time or down time to take on another part time job. One interesting option is to work out how many hours you need to work to pay for the non essential item or service you are considering buying.

[Retired To Win]

20/50/30???

... I really like that 20/50/30 percent income split theory. If I want more stuff than that... I need to increase income - it's that simple...

What is that, SNAFU?

[disneysteve]

What is that, SNAFU?

50% for needs, 30% for wants, 20% for savings. It comes from Elizabeth Warren's book I believe.