Should You Focus on Making More or Spending Less?

Should you focus on making more or spending less?

What’s the secret to wealth? It really isn’t much of a secret. You just need to save and invest as much as you can. Your investment will compound and your net worth will grow over the long haul. Last year, our net worth grew nearly $350,000. That’s incredible because we made much less than that from work. That kind of net worth gain is only possible once you have a significant amount of money invested. It wasn’t easy, though. We saved and invested diligently for over 20 years to achieve this result. It takes time to build wealth. In my 20s, most of our net worth growth came from new savings. When you’re young, you have to figure out how to save more. That’s the question today. Should you focus on making more or spending less?

Saving Rate

Let’s go over the saving rate quickly first.

Saving Rate = How much you save ÷ How much you make

The saving rate is one of the essential metrics to track if you want to retire early. The higher the saving rate, the less time you need to work. Traditional financial advisors usually tell their clients to save 10-15% of their income. This is fine if you plan to retire in your 60s. However, you need to save much more if you want to retire earlier. I recommend saving at least 20% of your income and aim for 50% if you want to retire in your 30s or 40s.

Increasing your saving rate isn’t easy. If it was, we wouldn’t have this looming retirement saving crisis. The average American saves less than 5% of their income. It’s pretty dismal. There are only 2 ways to increase your saving rate. That’s making more or spending less.

Make More Money

Everybody wants to make more money. Most Americans are focused on this side of the equation. We all think life will be easier if we have a little more income. If I make more money, we could move to a bigger home, buy a nicer car, and save even more. It makes sense, right?

The great thing about focusing on earning more is the unlimited upside. If you work harder and smarter, you can make millions of dollars. Here are a few ways to make more money.

Focus on your career

For most people, the best way to increase their income is to focus on their career. You already know the work and the politics. The next step is to do it better and take on more responsibilities. This is much easier at the beginning of the career. When you’re at the bottom, the only way is up.

That’s what I did at the beginning of my engineering career. I learned on the job and attended classes to expand my knowledge. I worked long hours and took on a lot of additional responsibilities. My employer noticed and gave me raises and promotions which increased my income quickly. Unfortunately, I topped out on the technical side and got stuck. I could have taken some management courses or studied for an MBA. That would have enabled me to move on to the management track. I didn’t want to do that, though. I enjoyed the technical side of engineering and I am horrible at managing people. The lesson is to keep learning and make yourself more valuable to your employer. The more you learn, the more you earn.

Side hustle

What if you’re like me in the latter part of my career? I was stuck and wasn’t going to get a big raise unless I made a drastic change. My advice is to make a lateral move and find a new employer. A new company may energize you and help you break out of your rut. Don’t just stay in the same job because you’ll become disgruntled and your work quality will suffer. Alternatively, you can increase your income by working more on the side.

The easier path is to put in the hours on another job. There are so many side jobs now. Here are just a few that come to mind.

  • Drive for Uber
  • Seasonal retail work
  • Rent out a room on Airbnb
  • House and/or pet sitting
  • Deliver pizza
  • Tutor

Start a business

The more difficult path is to build your own side business. This takes a lot more time and energy, but the payoff can be exponentially higher. I started Retire by 40 when I was working full time and it was really tough. I used to stay up and work on this blog until 1 am almost every night. Life was like this for 2 years before I retired from my engineering career to become a stay-at-home-dad/blogger. Back then, Retire by 40 replaced 25% of my income and helped keep us afloat. Things have improved since 2012, though. Now, blogging generates almost as much income as my old job and I work much less. Today, I make more per hour than when I was an engineer. That’s damn amazing!

*Interested in starting a blog? Check out my tutorial – How to Start a Blog and Why You Should.

Here are some side businesses that worked out well.

Starting a business takes a lot of time and energy. There is no guarantee that you’ll succeed, but the payoff could be much better than working a side job.

Passive Income

Lastly, I want to give a quick plug to passive income. Investing is another way to make more money. We generate income from our dividend stocks, rental properties, and real estate crowdfunding. Passive income is my favorite way to make more money. If you invest right, your passive income should grow every year without having to work more. That’s the best way to make money. It takes a long time to build passive income, though. You need to keep at it and invest as much as you can.

Spend Less

Now, we’ll take a look at the other side of the equation. Most Americans are obsessed about making more money, but that’s not enough. Making more doesn’t automatically increase your saving rate. When people make more, they tend to spend more too. Unless you have a good handle on your spending, it will be very difficult to increase your saving rate. Here is an example.

John makes $50,000/year. He invests $5,000 in his 401k and spends the rest. His saving rate is 10%.

Saving rate: $5,000 / $50,000 = 10%

Three promotions later, John now makes $100,000 per year. He needs to save $10,000 per year to maintain the 10% saving rate. To increase his saving rate to 20%, he’d need to save $20,000 per year. You see the problem? John needs to save 4 times more to double his saving rate to 20%. Also, saving more is the last priority for most people. They’d rather spend the money on a bigger home, a nicer car, and exotic vacations now that they can afford it. It’s not easy to increase your saving rate even if you make more money.

Saving rate: $20,000 / $100,000 = 20%

Prioritize spending less

This is why I think it’s better to figure out how to live modestly first. Once you have a good handle on the spending side, then it will much easier to save. Spending has a way to getting out of control. If you’re like most Americans, you’ll wonder where all the money went at the end of the month. Many people live paycheck to paycheck. To combat mindless spending, you need to track it.

We track our expenses in detail every month. This helped me figure out what’s important to us and what to cut back on. The gym membership, traveling, and RB40Jr’s activities are important to us so we don’t mind spending money on them. Having a nice car isn’t a priority and we cut back to just one modest vehicle. You need to cut back on things that don’t add happiness to your life.

Which should you focus on?

Should you focus on making more or spending less? This is a trick question. You need to work on making more AND spending less. Everyone should focus on increasing their saving rate instead of picking one side over the other. Working on just one thing isn’t enough. Here is what I recommend.

  1. Work on spending less first. This is a short term project. You can figure out how to cut spending in just a few months. Track your spending and get rid of unnecessary spending. The hardest part is to sticking to it and keeping lifestyle inflation at bay.
  2. Work on making more next. Making more money is much more difficult. This is a lifelong project for most of us. It’s easy to say “make more money,” but the execution is very difficult. If it was easy to make more, you’d already have done it. You need to put a lot of work into it. Those successful businesses I mentioned weren’t overnight successes. All those entrepreneurs spent a lot of time and energy on their projects. Success is never easy.

Finally, work on your weakness

If we were robots, my recommendation above would work perfectly. However, humans are unpredictable. I’m sure some investment bankers would scoff at living moderately, especially if they are convinced that making more would solve their money problems. On the other hand, a frugal van dweller would champion spending less. It’s almost impossible to convince people to change their mind.

Recently, I had a revelation. You need to work on your weakness. If you’re good at making money, you need to work on living more frugally. If you’re already frugal and can’t cut back anymore, then you need to work on making more money. That way you’ll grow your saving rate. Just take a good look at your finance and see which side is weaker. Try focusing on that for a while and see if it improves your saving rate.

At the RB40 household, we’re pretty good at living modestly so we need to work on making more money. Cutting back more at this point wouldn’t help much. On the other hand, any extra income we make will go straight into our investment and build wealth.

Well, what do you think? Are you better at making more or spending less? What’s your weak point?

*Sign up for a free account at Personal Capital to help manage your net worth and investment accounts. I log in almost every day to check on my accounts and cash flow. It’s a great site for DIY investors.

Image by Brendan Church

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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54 thoughts on “Should You Focus on Making More or Spending Less?”

  1. Well said, Joe! I think we don’t need to be experts at making or saving money, we just need to be good enough at both. Add investing to that equation as well and FI won’t be far off. Though, I do find it easier to focus on savings if you’re an optimizer and focus on earnings if you’re hustle. It’s easier to stay the course if you’re not going against your own personality type. So I would say focus on one that you’re good at while improve on your weakness. Being good at one while neglecting the other doesn’t help, as you said.

  2. Naturally, I am better suited for spending less. I have always been extremely frugal, and have never needed fancy foods, shiny cars (although that was my first big money mistake), new clothes, shoes, etc.

    I have succeeded in making more money throughout my young career, but that wasn’t necessarily because I was actively seeking to do that. I simply worked hard, connected with colleagues, spoke well in front of others, and the money naturally began to flow into my paychecks.

    I also love the free time I have with my wife and dog, so the idea of working more / side hustling is still off putting to me because it may take from the time I have with them! Maybe I will begin to embrace this side of the equation more in the future, but for now, spending less is my go-to!

  3. Hi Joe,
    Could you please address how you’ll pay for healthcare insurance premiums, how much they’ll cost and from which company/source you’ll get this coverage.

    I’m interested in knowing this because healthcare costs are holding my wife and I back from retiring. I am 48, she’s 44 and have done everything needed to get us where we could retire early, but monthly premiums north of $1,000 per month are holding us back.

    We have no debt, a paid off home and 1.7M in assets between taxable and non-taxable. My employers provides medical for free when I turn 55, but I don’t want to give 7 more years of my life!

    And they’ll provide discounted medical when I turn 50 in two years with a monthly premium of approximately $1,300 per month.

    After your wife retires, and I’m assuming she gets coverage for your family, how will you handle this and if you could point me in the right direction, I’d appreciate it!

  4. Great post as always Joe!

    I think both are important but I agree focusing on spending less is more important. Then you get used to your lifestyle and prevent lifestyle inflation. I focused on making more but now that I have a kid, I just want to save more and invest more so I don’t have to work more! 🙂

  5. Joe, thanks so much for the shout out! I’ve been traveling and what’s rally cool about my side hustle is that I keep making money while I’m on the road and disconnected from cell service deep in the Sierra Nevada mountains!

    Great post!

  6. Great share! I’ve reached a point where increasing my salary (in my progessional career) is nearly impossible. So working on lowering my expenses and building side-hussle or two have been my focus lately.
    Also, paying off all debt aggressively in the meantime helps a lot!
    Thanks for the post, puts this all in perspective again – a good reminder!

  7. Well written. How you elaborate the points is fantastic, Joe! Guess now I’ll have to decide on a constant savings rate for myself and keep on saving. I’m also amazed when you said your income right now is more per hour than when you were working, just how much do you make from blogging!? Great.

    Agree that making more should come after saving more because the effort for making more is a lot, while saving is more of restricting your desires.

  8. Hi,

    I am of view that it’s better to focus on spending less as the main pivotal point. One can work from this point and develop the plan towards achieving FIRE.


  9. Completely agree! By reducing expenses, I was able to pay down my grad school loans while earning little on post-doc and my husband was a stay at home dad. Within just months after getting a staff psychologist position, my loans we’re paid & I had saved for a down payment on a house.
    It’s what you spend, not what you earn!

  10. I’ve always focused on making more but we were lucky not to be big spenders. We might spend 200k some years but this ends up giving us over a 50% savings rate. So we had our cake and ate it too.

  11. Hi Joe, you covered this topic very well. I totally agree: try to do both. Spending has to be under control, no matter what. If someone could keep the spending sort of flat, while growing the income, that’s even better. Another thing is a little bit off the topic: the money has to be invested wisely. Saving is just the first step.

  12. Great Article Joe,
    I invest in Real estate and listen to many real estate specific podcasts. The vast majority of those guys will say to focus more on increasing income rather than reducing expenses. I see their point in that expenses can only be reduced so far and income can increase to limitless bounds. This advice however, is not best suited to the average person that may not have the ambition to run a business or actively invest. It takes a lot of work to run a business no matter how big or small. Even your blog takes a considerable amount of time to make the monetization worth while. So, for the typical person, you are 100% right that they need to focus on reducing expenses and increase their savings rate. Here at Live Fi and Free, my wife and I save about 20% of our gross income. Not bad for just starting on this journey about 6 months ago. We are laser focused on doing both increasing income AND reducing expenses to get a multiplier effect. We purchased a rental property which increased our income by approximately 6k /year and we are actively reducing our living expenses, right not narrowly focused on the grocery bill.

    Nice Article Joe!

  13. Before retiring, I would say focus on earning. Now that we are FI and living on our net worth, spending less is really helpful.

    BTW, Ernie Zelinski is also my hero. I used to keep his book “How to Retire Happy, Wild, and Free” on my passenger seat at work. My boss never noticed it, right up until I quit early and he was surprised! I love that Ernie comments here too. You are a star, Joe.

  14. Focus on earning BETTER, not earning more; and focus on saving BETTER, not saving more. BETTER income is passive income; or at least, income where you do not evenly trade time for dollars. BETTER saving is accumulating assets that generate more cash; not just watching your bank balance increase. I don’t think you can find financial independence in an Uncle Scrooge-type vault of any size, even 25x income. There are just too many unknowns, over too long a period of time. (And the knowns–like rising health care expenses and inflation–are bad!) My goal is to obtain cash-flowing assets that throw off sufficient cash to maintain my family; utilizing assets with the probability of increasing cash flow that can match or beat inflation. For me, that’s primarily real estate and dividend stocks. I don’t think you can save your way to wealth. Eating supermarket ramen, or bargain hunting your next jar of peanut butter, is not the best use of your time or your energy, and it’s no way to live. I don’t want to live below my means; instead, I want to increase my means.

    • Investing is a big piece of it, but you need to save first. It takes a long time to build passive income and you need to be persistent.
      Our passive income was negligible for many years when we were young.

  15. I do both reasonably well. I track my pennies, though we are now willing to spend a bit more than we used to for convenience and making our lives easier, and choose purchases with lots of consideration for the opportunity cost. AND I worked really hard to build my career and earn some money on the side. It’s time for me to focus on more valuable side jobs that earn more per hour though. I got my juices flowing with a low-pay low-to-no commitment gig which was easy to do in my drips of time (5 minutes here, 20 mins there), and now I want to spend a bit more time on higher paying gigs. I also spend some time on my investing strategy to make sure that it’s going to grow on its own without requiring my efforts.

  16. Hey Joe,

    Great article! I agree that you definitely need both. When it comes to saving, my wife and I aren’t quite there, but we plan on saving 50% of our income a year from now. We are currently in the 10-15% mark, but once I’m out of school and working full-time then we can kick some butt.

    • Good luck! It’d be awesome if you can save 50% right out of school. That will turbo-charge your investments for years to come. I don’t think it’ll be that easy so don’t be too disappointed if you can’t do it right away.

  17. I would say that focusing on spending less is the first step if that’s not under control. It is generally easier to cut spending in my opinion. Get rid of cable, pack lunch to work, cut out some luxuries and you’ve got some savings. Much harder to get a promotion and start a side hustle. However, once you’ve got your spending under control, you should focus on earning more. I was always pretty frugal and I found myself trying ways to save a few cents or dollars which really wasn’t going to move the needle. At this point, I needed to focus my energy on earning more and not cutting an already frugal budget.

    • Exactly! Most family has too much leakage. They spend mindlessly on things that don’t matter to them. That’s why everyone should track their spending and see where the money went. Good luck on earning more.

  18. Back when my husband and I were younger, we focused on our career to increase our income. Fast forward to today, we are making decent salaries so we are focusing on spending less. Since we decided to join FI, we are now focusing on both to speed up the process. In my opinion, spending less is more important. No matter how much more money you could make, it’ll be gone if you can’t control your spending. The trick is if you can make more and can spend less, you’re on FIRE.

  19. I like this, Joe – start with the low-hanging fruit of cutting expenses as that tends to be the easiest (for most folks). Then move on to finding ways of making more money. And like you said, that doesn’t have to be a side hustle – that could also be making more money at your current job.

    I ended up doing both strategies and it’s paid off. Cutting expenses is finite though, while there’s really no upper limit to how much money you can make. We’re now focused on bringing in more money through things we’re enjoying – like my blog, writing books, and even some real estate.

    — Jim

  20. At this point in my life, we are saving more. I don’t want to work long hours any more and make more money. Did that for so many years. Although, I am trying hard to make more passive income and increasing our investment income.

  21. If making more was always the solution, you wouldn’t see celebrities/professional sports players flat broke, same with lawyers/doctors etc that make a big income. There are always new shiny things to spend money on regardless of how much money you make. That said, pretty dang hard to save very much on $10/hour, no matter where you live.

    • Exactly! No matter how much money you make, you can always spend it.
      You need to work on both. $10/hour is dismal. People on minimum wages need to gain the skills needed to make more income.

  22. Increasing income, no doubt, can supercharge the road to FIRE. But being content with spending less is a philosophy you can cultivate on your own, at any time. It’s something you can control. And that contentment is a real buffer to the ups and downs of finances.

    • I love it. Contentment is hard to achieve, but once you’re there life is much easier. It seems like an internal vs external struggle. You can control your expense much better than income. It doesn’t depend as much on external forces.

  23. Great guide as always, Joe! When hubby and I were students, we definitely focused more on spending less. We didn’t have much to begin with, so it was out of necessity.

    Now that frugality has become our habit and tested tool to build wealth, we’re now focused on growing our careers and making more money. It’s great to see the money hitting our bank account every month and see the much lower amount that leaves the same account 😀

  24. If it was a choice to pick one I would choose spending less. Although earning more is nice because of progressive tax code etc the actual impact to the bottom line is less (extra dollar earned at highest bracket really is worth 63 cents).

    Saving a dollar means you get the full dollar in your bottom line since it was an after tax amount

    Also lowering your spending means a smaller nest egg to support it while most people blow the increased income with lifestyle inflation

  25. This article has made me think a little about our own situation.
    I have been steering the family towards FIRE over the last number of years (in fact, from before I had the family of the better half).
    We decided that despite the high cost (~£20k a year), that we should get a nanny to look after our son to allow me to keep my well paid job in an industry in crisis (oil) which has lots of travel and to allow my wife to keep working in hers (before we have another kid that is).
    So we deliberately set about to increase our spending, knowing that it would allow us to earn more money. We have the resources to afford it – even if it does mean we run a current account deficit on take home pay (pension contributions are maxed).
    Whilst we shouldn’t think that we are slaves to our circumstances – you do have the choice to do what you like. The alternative for us was to have 1) no nanny and keep our jobs – extra stress 2) my wife quits her job – not good for long term career prospects (a major cause of the gender pay gap) 3) I quit my job and look after the kid – it may be difficult to re-join the workforce and FIRE would be iffy.

    Earn more, spend less and invest wisely. The FIRE Triangle as I see it. Don’t pretend that focusing on one doesn’t lead to a detriment of at least one of the others.

    • I think you made the best choice for your family. Getting a nanny enabled you to keep working. That’s a good decision for your family. Nice job. Everyone needs to figure out their own solution.

  26. Like any good game, you need both an offense and a defense. Earning and saving. The trouble is, most of us can’t just work harder and earn more at work. Everyone is trying to impress the boss, and those workers without families always have the advantage.

    When I had to cut out early to go pick up my kids from daycare, the younger employees without families were still working. It’s a game I could never win.

    Once you start a family, your free time just disappears… and along with some of the opportunities to earn more. I’m not saying it’s impossible, just hard. 😉

    So I played a different game. What got me to early retirement was my ability to invest well. That’s how I “made more”, but we always saved more than 50%.

    • You’re right on with the job. People with a family has to work differently than young single employees. That’s part of the reason why I couldn’t stay on the technical side of things. Your ability to invest well gives you a great edge. That’s really good.

  27. Woah woah, I am so late to the party but Ernie is kicking ass and taking names! I was under the impression that authors don’t make that much, especially these days. That’s an amazing accomplishment! Right, well I’m salivating :)))

    Yes it’s a total trick question. It’s like asking a person alright, you can have a mouth or you can have the other hole… choose ONE. Won’t end well :p

    Thanks for the shout out Joe 🙂


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