Are you looking at ways to increase your monthly savings? Would you love to be able to increase your monthly investments in the stock market?

The general rule is that if you are able to save 50% of our monthly income into dividend growing stocks with an average dividend growth of 6% then it should take you approximately 17 years to become financially independent.

I don’t know how this sounds for you, but firstly 50% sounds like really a lot to me and secondly 17 years sounds like a very long time!

If you’re convinced that Financial Independence Retire Early (FIRE) is your strategy then your savings rate becomes very important and you should have a strong incentive to maximize your savings while seeking FIRE.

But now you may ask yourself:

• is it possible to increase my savings rate without sacrificing too much of my own lifestyle?
• how can I increase the savings rate without having my family miss out on things?
• should I start eating instant noodles every day?

Those were exactly the questions that I had in my mind when I started the journey of Dividend Growth Investing.

I started investing in the autumn of 2014 and since then I have tried several ways to increase my monthly savings. I have learnt what works for me and I can tell you that A very frugal lifestyle was not one of them!

Below I will list 5 impactful ways that really maximize your ability to save, but before we go there, let’s describe an example case that we can refer to and do some math!

I assume that you are earning 3000 Euro per month as a family. I also assume that at the moment you can save 1000 Euro a month without too much impact on your lifestyle. This means a 2000 Euro cost-of-living, a 33% savings-rate and it isn’t the 50% that you’re ideally seeking for.

In this example, your goal would be to get as quick as possible to a monthly savings that matches the cost-of-living.

A clear goal, right?

So let’s talk now about the 5 ideas to increase your savings.

1. Increase your salary

Talking about savings automatically triggers my mind to think in “cutting costs” (scarcity mindset). The issue of focusing on cost-cutting means that there’s only so much you can do. It didn’t therefore took too long for me to realize that the power of compounding also applies to your income.

And with growing income there’s unlimited upside! (mindset of abundance 💪)

I truly believe that for the majority of us it is the easiest to look at increasing our monthly savings by having it embedded in our daily routine. For most of us this means work.

So if we are working 40 hours already anyway, then why not trying to channel all our energy in becoming the best in our job and get recognized for it within your industry?

This creates clout and I’m sure that this will have a positive impact on increasing your salary.

What are the ways then to increase your salary?

I beleive that these are some good and sustainable examples:

• your manager has recognized your strong growth and contribution to the company and increases your salary (the most sustainable salary growth)
• you switch roles in your company which includes a promotion (similar to the above)
• you switch companies and can increase your salary instantly (a one-off salary boost)

What would it mean then if you could increase your salary next year by 5%?

In the example case, a 5% increase would mean 150 Euro additional in income. If you would use the full salary increase for savings, then your monthly savings would increase straight away with 15% (1000 Euro -> 1150 Euro) and your monthly savings rate would increase from 33% to 36.5% (3150 as salary) or 38.3% compared to the former 3000 Euro income.

Note: I am leaving taxation out of the example as it differs heavily per country

In my case I have been able to grow my salary for 3 years in a row at an average of 8%, which would mean in the above example an increase of 780 Euro or otherwise said: 1780 Euros savings per month vs the 2000 Euro that I would need to match my monthly expenses.

Just this focus which resulted in salary increases brought me already pretty quickly to an ideal savings rate.

2. Work in a growth sector

This is a bit similar to the first bullet, but I decided to call it out separately, because I have experienced myself what a huge difference it makes.

If you are working nowadays in the Oil&Gas industry, the Banking sector or for instance the public sector, then it might be hard to actually get a 5% salary increase

A lot of these sectors have been under a lot of cost pressure in the last decade. You can imagine that this doesn’t bode well for employees as they make up a large part of their costs. As an example:

• The Oil & Gas industry has yet to recover from the 2015 oil crisis. Many of the companies have heavily reduced their capital expenditures and focused on large cost-reduction programs instead.
• The banking sector is heavily impacted by the low-rate central bank environment that we live in. At the same time their business models are heavily challenged by fintech start-ups. Many bank-clerks have lost their jobs and were automated away (online banking activities replaced a lot of clerks)
• The public sector typically tries to match their cost increases with inflation, because they are very sensitive to reputation due to the political environment that they are part of. For this reason salaries are typically lower than the market and upside salary growth is limited.

What I have learnt is that the sector your work in makes a big impact on your capability to increase your income. You want to be working in sectors/companies that benefit from secular growth trends or are driving the 4th industrial revolution.

As an example, two sectors that stand out to me are:

• Information Technology, i.e. Google or Facebook but als consultancy firms like Accenture
• BioTech, i.e. Novartis, Abbvie, Johnson & Johnson

This doesn’t mean that you suddenly require a PhD first before you can join such companies. To the contrary, they also need a lot of people working in functions that support their core business process. I.e. Human Resources, Finance, Information Technology, Administration.

If you can’t find any jobs posted at some of these companies then try to start working for one of their suppliers first. For instance contracting companies could be a great start. This allows you to build a network, learn which are the skills in high demand and you will get earlier insight in new job postings.

The benefits of working in such a sector are:

• They typically have good people development budgets for trainings and conferences
• They typically provide above market-average bonuses
• They typically grow rapidly in size, which means a lot of opportunities to grow with the company and get promoted

So, let’s go back to our case then. Imagine that you have changed you job into such a growth sector. It is not uncommon for such companies to pay a 10% annual bonus as a base. In many companies, including the few that I worked for, these bonuses get multiplied by a factor (i.e. 1.2) based on the overall company performance related to its targets and your individual performance.

In our example case, a 10% annual bonus would mean a 300 Euro of additional monthly income. A high individual performance could increase this number even higher, to for instance a 360 Euro additional monthly income.

As you can see, a bonus can really contribute a lot to your monthly savings rate. In my case I have been able to get a bonus above 10% of my annual income since I’ve been working in such a growth sector.

Just the bonuses including the 8% average of salary increases has already catapulted me into a situation where I am able to match my monthly savings rate compared to my monthly cost-of-living expenses.

This in just 3 years, while I thought that it would take me at least 5 to 7 years!

3. Lower your housing expenditure

In Europe, almost 25% of the monthly household budget is spent on housing.

For many of us the housing expenditure is actually higher than the 25%, because the 25% is just an average. I’m below the age of 40 which means that I am still in my early years of paying of the mortgage. A large part of European society is already retired and many of them have paid off their debts significantly and therefore have much lower housing expenses.

This influences the averages, so I wouldn’t be surprised that in your case your housing expenses are actually closer to 33% of your monthly expenses.

So what can we do about lowering the monthly housing expenses?

I believe that these are some good ideas:

• Find an opportunity to refinance your mortgage for a lower interest rate
• Move to another place where housing prices are lower, but still in close proximity to work, public transport, and other facilities
• House-hacking, i.e. rent parts of your apartment to others
• Make additional mortgage down-payments

So let’s get back to our case then. 33% of housing expenses would mean approximately 650 Euro per month. What if we could bring that down to 500 Euro a month (which is not unlikely) by just moving out of the city to a lower-cost but still urban surrounding?

In this example it would save you an additional 150 Euro per month.

I have done this and I would argue that it even increased my quality of life.

My commuting time is a little bit longer though, from 30 to 45 minutes, but I consider that not that much. I travel now by public transport and I am avoiding the daily traffic jams. At the same time I get to read books and personally develop myself.

As a side-benefit, I am also in closer proximity to nature which allows me to live a healthier lifestyle.

4. Find a side hustle

This only really works if you can free up some time in your life, but if done well, it can also increase your monthly saving rates quite substantially.

In general I would recommend investing your time in a side-hustle which has the potential to scale-up at no additional costs (also called passive income, but don’t think that it won’t cost you time).

Some examples of popular side-hustles that I am aware of are:

• turn your hobby into an income stream (i.e. fitness trainer, dance teacher, blogger)
• join the gig-economy, i.e. turn your car into a profit generating machine and become an Uber driver
• start an online business via drop-shipping
• write an ebook about something that you are passionate (passive)
• create and sell an online training, i.e. on Udemy.com (passive)

I have experience with turning your hobby into an income stream. Back in the days (when I was young 😛) I had the luxury to earn some additional money with playing sports. It wasn’t a lot, but enough to not need to work in the weekends as a student.

Currently I haven’t got another side-hustle and I don’t see a need either for it. I currently don’t want to sacrifice my free time and I have the luxury already to be able to match my savings with my monthly expenses.

However, if I had to chose now, then I would probably spend several hours a week being an Uber driver. It would give me the freedom of doing it whenever I want and it would probably be the easiest way to start without a lot of up-front investment in time.

I am sure that I could earn an additional 100 Euro by driving an additional 16 hours / 2 days per month.

5. Sell your car

From all the ideas that I am mentioning, this one would probably be the hardest to implement.

So why am I mentioning this idea then?

Let’s go back to the Eurostat data. Based on the 2018 figures, its quite clear that owning a car(s) makes up 10.3% of our monthly household budgets. This is the 3rd largest expenditure after housing and food!

Personally, the last item that I would save money on is food, because food is very important to a healthy lifestyle and what’s the purpose of pursuing FIRE if you won’t be able to properly enjoy it?

Having said that, owning a car is something which costs a lot of money. In the example case, owning a car would cost approximately 200 Euro per month (I know that in reality for many of us this is even more).

This is something that we can slash out of our budget almost entirely. I believe that will increase your general fitness because it requires to take the bike more often, to walk a bit more, even if it’s just to the bus stop. But it will also cost more effort and more sacrifice to take this decision. Especially when you are owning only one car as a whole family.

So let’s get back to our case then. Selling the car will free up 200 Euro in budget. I will not account for the full amount as savings. I will keep reserving 75 Euro per month for additional public transport costs and incidental car hiring.

This means in our example case an additional 125 Euro of savings (200 – 75).

In my personal situation we are owning two cars. I am aiming to sell one of our cars in the upcoming year. I will try this summer to not use the second car at all, so that we get used to owning only one car. If that test is succesful, I’ll put the car up for sale and save the additional money that comes with owning the second car (fuel, maintenance, insurance, depreciation/reservation for a new car)

It should work, because after implementing idea # 3 (lowering housing expenditure), we now live in close proximity to schools, public transport and grocery stores. At the same time we will still own one car. So let’s see if we need to own that other car as well after the 1st test would be succesful.

Conclusion

Let’s use our case story to see how it would look like after 1 year of implementing all 5 ideas. And let’s be honest, these aren’t easy ideas to implement. For instance, changing jobs often takes a lot of cuorage, especially if you’re well connected and integrated in your current company.

Based on our example case, these would be the results after 1 year of effort:

Income Increase

• Salary increase – 5% increase: + 150 Euro
• Change of Industry – 10% Bonus: + 300 Euro
• Side-hustle – Uber driver: + 100 Euro

This would mean a total income increase of 550 Euro from 1000 Euro to 1550 Euro

Expense reduction

• Moving out of the city – Mortgage decrease: – 150 Euro
• Selling your car – Using public transport: – 125 Euro

This would mean a total expense reduction of 275 Euro from 2000 Euro to 1725 Euro

Using these numbers would still mean a gap of 175 Euro, but I believe that you get the point. 1 year later and another salary increase would almost close the gap and this is what I meant in the beginning of this article with the power of compounding.

So implementing this approach will allow you to actually double dip in Compounding. Because besides leveraging the power of compounding on your investments, it also works on income and often beats inflation, especially in your growth years!

Sounds great, doesn’t it?

It does to me!

As mentioned before, I have already implemented some of these ideas and they have really fueled my savings rate! I have been able to maintain my lifestyle and my mindset shifted towards abundancy and I avoided with that falling into a mindset of scarcity.

Well, that was all from my side!

I hope that you found this post helpful and feasible to your own personal situation 🙏

I’m curious to hear from you and whether you have similar ideas. Did you also try to maximize your savings? What worked for you? Or what didn’t work for you?

In any case, feel free to get in touch with me or leave a comment and I will try to get back to you as soon as I can.

Thank you for stopping by and reading this far. Have a good remainder of the day!