Personal Finance: Why Vertical Income Growth is More Important Than Saving

Everyone has heard the term “you’ve got to spend money to make money”, but just how much does that apply to the realm of personal finances?

Let's be honest, everyone would love to reach their savings goals. The idea of having a little nest egg tucked away in a high-interest bank account or market fund makes us feel safe and ready for financially-damaging situations. 

But what not everyone is aware of is that saving is only half the battle - especially for low-income earners. To truly secure yourself and reach your goals, you have to vertically grow financially. 

Though the term “vertical growth” means many different things - in personal finance, it usually means increasing your income in whatever way possible.

Whether this is done by negotiating for a higher salary, picking up some side contracts or hopping to a better-paying position; it’s all considered vertical income growth, because your income will grow in an upwards trajectory.

Of course, this comes with its own minutiae and caveats, but the general idea revolves around increasing your income while maintaining your current expenses and liabilities, if not lowering them in the vein of saving alongside said greater income.

We’ve heard it repeated endlessly, “build your emergency fund", put part of your income away for investments, build your savings for retirement”.

But if you’re stuck making the same amount of money over the course of years, just how effective is this advice, really?

Even entirely ignoring the devaluing effect of inflation, our financial expenses tend to grow as we get older. We have children, we desire a more stable life, our health starts to cost more to maintain.

All these factors add up to just saving alone being insufficient - especially in today’s day and age, where income has stagnated more than ever.

In order to truly be successful at achieving your monetary goals and building up your savings, you need to do more than just put away part of your income; you also need to increase your income as well.

Getting your income to grow is done in an innumerable variety of ways. Depending on your background, occupation and even location of residence, there are dozens of paths to improve cash flow. Far too many to fit in a single article, in fact.

If you’ve got no idea where to start, looking at how to improve your current source of income is often a good start. Can you request a salary increase? Expand your business? Take on more clients? Invest the money you’re receiving?

Chances are, there are ways to increase how much money you make just from your main income source alone.  Even if you've exhausted this route, there are always side hustles to fall back on.

Maybe you’re convinced and all amped up to start a side hustle. But a question still stands - how do you go about using your increased income? What’s the right way to leverage your financial growth?

Any experienced coach will tell you that these are pretty loaded questions. Luckily, there are several guidelines that apply to nearly everyone, regardless of how far they’ve got left to reach their goals.

• Avoid Lifestyle Inflation

The first thing anyone does when getting a well-earned bonus or salary bump is thinking of how to spend it.

While this isn’t necessarily a bad thing, it’s a good idea to hold off on that kind of thinking, especially if it concerns large purchases.

Lifestyle inflation is when an individual upgrades their quality of life - and therefore expenses - as their income increases, keeping them at the same ratio of cash influx-and-outflow.

Generally, when still building your emergency fund or building up a savings goal, you’ll want to keep your lifestyle expenses the same - even if your income has increased. This ensures that more money is being funneled towards your financial goals without the feeling of your lifestyle being downgraded.

Not to say that you shouldn’t improve your quality of life - especially if it isn’t the best. Only that you will have to choose which to prioritize in the current moment; your goals or your wants.

• Keep Track

Keeping track of your finances is a basic rule for all purposes, but it is all the more essential when seeking further cash flow.

The logic behind such advice is that you will be able to maintain a scaling ratio of how much money is going towards your goals. Think about how much your income is increasing, and compare how much of that income is going towards savings in comparison to your previous income lot.

Chances are, if you’ve managed to achieve some level of growth but your savings account deposits have remained numerically the same, then you aren’t reaching your goals any faster than before.

• Upskill Yourself

Not everyone makes their money by being an employee - some are entrepreneurs, or do contract work.

One applicable piece of advice that applies to all individuals, however, is that of improving their skills.

Whether it be improving your technical proficiency in your chosen career path, getting to know your business’s products better or even building additional skills entirely - one of the best ways to increase your income is to increase the quality of your output.

Still not convinced? Remember that savings can only go so far in terms of how much can be cut back.

Even if all your needs were bought and paid for, you'd still only be able to save your current income as a whole. In comparison, vertical growth is (speculatively) unlimited, and by that logic the amount of money you may be capable of moving towards your financial goals may also be unlimited - or, at the least, not limited in the same manner as saving money alone would be.

I am a freelance writer based in the Philippines, with a passion for living outside of the box and the written word.