Why Making More Money Trumps Spending Less in the End

by RC on July 14, 2008

ace.jpgI have become a firm believer in eliminating unnecessary expenses and adopting frugal practices. Not wasting money or resources seems like a good thing to do to me, both personally, for my bottom line, and for society in general. I am also a big believer that one should try to maximize your income. Making more money is always a good thing for your bottom line, provided it does not adversely affect your health, family life, or relationships, etc.

So which is more important or better and which one should people focus on?

Well, both. I do think one should eliminate unnecessary expenses and spend money wisely. But…

Increasing your income has the greater potential to improve your bottom line. Why?

Suppose you make $50,000, and your essential expenses (food, shelter, heat, taxes, etc.) are 60% of your salary or $30,000. This means you are left with 40%, or $20,000 that you might be able to trim. Some of these expenses might be considered pretty important to you as well. If you were to able to trim that $20,000 by 50%, you might knock down $10,000.

Now suppose you make $50,000 and you increase your income by 50%. That would be an additional $25,000.

Now, you could make the numbers say whatever you really want in the above example, but my point is that at some level you are limited in the amount you can decrease your expenditures. Most people need food, clothing, shelter, heat (and probably air conditioning depending on where you live), and many people have to provide this not only for themselves but also for their families.

If you had zero living expenses, you could not reduce them any more, obviously.

Your salary or income, on the other hand, theoretically is limitless. Now, it is unlikely that you can end up adding a billion dollars a year to your net worth, like Bill Gates or Warren Buffett can. But, you can certainly make large gains in your salary or income, by getting a better job, getting promoted, starting a side business, investing, and so on. So which one should you focus on? Both. Limit your expenses as much as possible, and work on ways to increase your cash flow and earn additional income. But the one with the greater potential is making more money.

Image by Darren Hester

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{ 7 comments… read them below or add one }

SingleGuyMoney July 15, 2008 at 5:27 am

Great post. It’s good to see someone put a different spin on the old debate.

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RC July 15, 2008 at 6:50 am

@SingleGuyMoney- Thanks! Yes, it is a very debatable issue, and I do think cutting costs is very beneficial and important, but making more money can be almost unlimited if you think about it.

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David July 17, 2008 at 3:12 pm

Great post and as SGM said “spin on the debate), but personally I would rather cut expenses so I can work less and still live my life the way I want. If I have to make more money, that means more hours at work (for most cases, anyway) and less time to do the things I want.

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RC July 17, 2008 at 8:18 pm

David:

I definitely agree with your point of view, working more hours is not the best solution-especially if it takes away from your personal or family time . Better would be to make a higher salary or hourly rate (i.e.-increase your value to your employer), or start a part-time business where you can make money at times convenient to you.

Thanks for the comment!

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Moneymonk July 25, 2008 at 12:15 pm

I think Robert Kiyosaki said it best, “when you are liviing below your means it’s like you’re starving yourself”

I say always EARN MORE than you spend.

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stacy October 30, 2008 at 2:36 pm

Although I agree that you can only cut your expenses so much and making more money is a better method of improving your cash flow making more money isn’t an option for everyone and it seems to be the more you make the more you spend. My mom has worked in the bank for years and is now a stockbroker, but while I was a teenager she was doing loans and she used to tell me stories (without names obviously) of very successful people ie/doctors, lawyers, university professors that she had to turn down for loans because they had poor credit. Her number one lesson to me was that no matter what you can’t spend more than you earn. While I was surfing around for saving tips I saw something that bears repeating – if you make $50,000 a year and spend $49,000 you’ll be happy, if you make $100,000 and spend $110,000 you’ll be miserable.

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KC May 16, 2011 at 6:56 am

LOVE this. I do both. I moonlight and never had cable or TV since I graduated college in 1997. (I read my news each morning at work on the internet like now :) People easily watch 8-10 hrs a week watching TV and I rather work while taking no time from spending w/ the family. I take two weeks off a year to go camping (saves $) for family vacations. I plan to moonlight as long as I am young and able!

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