Rachael O'Connor at Newsweek drew a personal-finance lesson from New York City's plan to eliminate a $12 billion budget deficit, largely through new aid from Albany rather than cuts. Her point was that the city did not scrimp its way out. It found more revenue. She asked whether households should think the same way.
The standard advice is to cut subscriptions, pack lunch and save a few dollars a day. My view is that the small-savings advice is not wrong, it is just insufficient. I shared a client story with Newsweek. She scrimped for months, cut subscriptions, brought lunch from home, and managed to save around $200 a month. Meanwhile she had not asked for a raise in four years. One uncomfortable conversation with her manager got her an extra $8,000 a year. Forty times what the lunch strategy produced, from a single meeting.
In personal finance terms, that is the city's Albany money: a pay raise or a better-paying job. Income growth changes a financial situation much faster than expense cutting, because there is a floor on how little you can spend and no ceiling on what you can earn.
The caveat, which another expert in the piece made and I agree with, is that a raise only helps if spending does not rise to meet it. The client who got the $8,000 directed it to her retirement plan before it hit her checking account. That is the second half of the lesson: earn more, then hide it from yourself.
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