The following article is from Mike, our staff writer.
When Joe and I first talked about the possibility of me being an RB40 contributor, he asked me a few financial questions to see if I’d be a good fit. One of those questions was:
“Which do you think is more important? Saving more or earning more?”
This was a real no-brainer for me because I had just discussed this exact topic over a glass of wine with some friends a few nights earlier.
The obvious answer is that you want to earn more and save more. Remember, the simple way for anyone to build wealth is to spend less than you earn and invest the rest. Saving money and increasing your income are both vital parts of the equation, and if you can combine them you’ll reach your financial goals that much faster.
But that’s kind of a cop-out answer isn’t it? It dodges the question rather than answering it.
So how did I answer Joe’s question?
Simple. If I was forced to choose between saving more and earning more I would rather earn more.
Don’t get me wrong. I’m all for being frugal and making the most of your money. You should definitely look to trim your expenses wherever possible. The problem is there’s a limit to how much you can cut.
For example, let’s say after taxes you bring home $2,000 per month and your expenses (rent, insurance, food, etc.) come to $1,500 per month. You’re currently saving $500 a month.
But in order to reach your financial goals, you decide you need to start saving $1,000 a month.
Can you trim your expenses by $500? Maybe.
You can choose a less expensive cell phone plan, cancel the expensive cable movie package, car pool with your neighbor, stop eating out, and cut every possible penny from your expenses. But there are two problems with that.
First, while you won’t mind eliminating some expenses you’ll probably have to do without some things you really want to keep. Depriving yourself of everything you enjoy is not a formula for long-term success. Like crash dieters who eat nothing but rice cakes and water before splurging on bacon cheeseburgers and fries, people who take frugality too far are doomed to failure.
Take our example one step further and assume you needed to save $2,000 a month. You obviously can’t save your entire salary since you need food to eat and a place to sleep.
So the only way to increase your savings and reach your financial goals while still being able to afford the things you enjoy in life is to earn more. You can do that by getting a promotion, working a part-time job, freelancing, or finding a side gig to help you earn extra money. Doubling your income might be a stretch, at least at first. But with a little creativity you should be able to find a way to bring in at least a few hundred bucks a month.
Life is all about balance and I don’t think it makes sense to eliminate all of the good things in life. After all, what’s the point of working hard if you never get a chance to enjoy yourself? I’d much rather focus on earning a little more and making smart choices so my family and I can afford to eat out or go to the movies now and then.
What about you? Do you think it’s more important to earn more or save more?
Joe> It’s definitely important to do both. However, my take is spend less, then earn more. You really need to get your expense under control first. If your spending habit is not under control, then earning more will just mean spending more. In the long run, earning more is more important, but when you’re starting out saving more is the key.
Mike Collins is a freelance writer and blogger who specializes in personal finance topics. He’s also a husband and father of three children who keep him very busy. You can read more about his quest to achieve financial freedom for his family at WealthyTurtle.com
photo credit: flickr ugardener