The Classic Debate: Earn More Or Spend Less?

I find it intriguing that many financial experts are torn on the earn more, spend less debate.

When I first began learning about personal finance, almost every blog I read focused on living below your means (i.e. frugality). The first personal finance book I read, The Millionaire Next Door, wrote about millionaires with a frugal mindset. Most of the millionaires were self-made due to their frugal habits. The majority did not drive fancy cars, have fancy clothing or live the “millionaire lifestyle” we associate with these wealthy individuals. Instead, they focused on cutting their expenses and living well below their means to increase wealth.

On the other hand, I have read many blogs that say you can’t get rich by being frugal. They emphasize the earning side of the equation rather than the saving side. Rather than cutting back on the typical expenses such as cable and caffeine, they focus on negotiating a better salary or starting a side hustle.

So which approach is better?

Let’s look at the differences between the two methods.

Penny Pinching

Penny pinching is the art of frugality. Those that are penny pinchers focus on living below their means. They want to reduce their expenses and manage their money to attain their long-term financial goals.

The great part about this method is that anyone can be frugal. I am in the process of searching for an apartment to live in and my number one criteria is the price of rent. This is something that I can control. If I find an apartment that is $50 cheaper a month, it saves me $600 a year. However, that statement is wrong. In the context of earning more versus spending less, you need to take into account taxes. See, when you make money you have to pay taxes on your income. Here is a simple example:

Taxes: Federal 20%, FICA 7.65% (US only), State 2.35% = 30% Total Taxes

Savings are in after tax dollars so we need to convert them to pre-tax dollars for comparability. To do this, simply divide 600 by (1 – total taxes). In this case, it amounts to 600/.7 = $867 pre-tax dollars. This means that $600 in rent savings is equivalent to earning $867. Spending less makes more sense in this equation because you need to work harder or longer for $867 as opposed to saving $600.

Another important point to be made is that income does not determine wealth. Think about the number of people who win the lottery. Many go from average to rich in a matter of seconds. They spend their new found wealth on buying that large house, shiny sports car and all the luxurious items we associate with the rich and famous. However, due to their spending habits, 70% of them end up broke. This is why income does not determine wealth. Whether you make $50,000 or $500,000, you still need to live below your means.

Like everything, there are some downsides. You will find yourself saying “no” more often than you want. When your friends are spending their paycheck at the bar, you may be home watching Netflix. Additionally, there is a limit on how much you can save. You can only cut your expenses so much until you are stuck with the bare necessities. Finally, you may feel like your life is very dull. Often times you may question, “How can I afford it, without breaking my budget?” Where does that vacation fit into my budget? If you only make $3,500 a month and your goal is to save $1,000, it may be very hard to enjoy much outside of the basics of life.

Earn More

Often times they laugh at people who recommend the classic advice of cutting back on caffeine. If you are able to negotiate a salary increase, the small savings gained from cutting back on caffeine seems a waste of time.

I mean, hey, who would not want to increase their income by $1,000 a month? If we took the tax example from above, this would be equivalent to cutting back $700 on expenses per month. The idea here is that there are opportunities available to increase your income to allow you to live the life you want. Often times increasing your income via a side hustle or negotiating a higher salary is the best way to earn more. For instance, I started this blog as a side hustle. While it is not a get rich quick scheme, it allows me to diversify my revenue streams so if I lost my job tomorrow I would still have some, very little, income coming in.

Just like being a penny pincher, there are arguments against this method. The first one is that not everybody can earn more. Unlike cutting cost, something everybody can do, earning more requires some skill, motivation, and luck. Luckily, there are thousands of ways to make more today. Whether you are an Uber driver or a tutor, we all have some skill. Another argument is that even if you increase your income, you still need to manage your money. Without frugality, you will live the paycheck to paycheck lifestyle regardless of how high your income is.

Which method is best for you?

In the ideal world, you would increase your income and cut back on cost. When you increase your income lifestyle inflation may occur. With a $5,000 raise, you may think you can take a $5,000 vacation a year. This is where frugality comes into play. Learning how to balance your income growth as well as limiting your spending will create wealth.

This is why I personally believe it is more important to be frugal rather than earn more. Without proper spending habits, your income means nothing. However, with that said, increasing your income allows you to exponentially increase your wealth and achieve goals quicker. If building wealth is your goal, penny pinching and increasing your income should be used simultaneously!

What mindset do you have? How do you negotiate a higher salary or start a side hustle? How do you manage your spending?


26 comments… add one
  • ESI Money Oct 24, 2016, 10:04 am

    No doubt that you must spend less than you earn no matter what you earn, so I’d agree that spending less is more important.

    But like you say, why settle for one? Do both of them, super-charge your net worth, and retire early!

    • Stefan Sharpe Oct 30, 2016, 5:39 pm

      Both are always better! I never understand why people must choose a side.

  • Colin @ rebelwithaplan Oct 24, 2016, 11:08 am

    Growing up, I was constantly in the money scarcity mindset. I’ve lived through it and developed the habits for cutting back, understanding my behavioral attitude toward money, and frugal living. In a current time when wages are stagnant and low salaries, I am a big advocate for earning more.
    Personal finance is all about growing your gap. The gap between what you expenses and your income. If you don’t have enough income coming in to cover your expenses, look for ways to cut back your expenses. Once you’ve cut back all you can, focus on growing the gap in the other direction, increasing income. All about growing the gap!

    • Stefan Sharpe Oct 30, 2016, 5:40 pm

      I love you explain growing your gap. You can only cut back so much before you must make more money!

  • Rebekah Oct 24, 2016, 11:46 am

    Good thoughts. Its definitely always good to cut back, even when you are able to increase your income!

    • Stefan Sharpe Oct 30, 2016, 5:40 pm

      Couldn’t agree more, thanks for sharing your thoughts Rebekah!

  • Bob Oct 24, 2016, 11:55 am

    The key is to make more while spending less. You would be surprised that when you get older you hardly ever use all that crap you bought when you were young. You don’t have to be a miser or live in a tiny house but if you spend money only on the things you really need or use you would be surprised how much you save.

    • Stefan Sharpe Oct 30, 2016, 5:41 pm

      I imagine we go through many phases in our life when we think we must have this item and in the next two years it becomes obsolete. Will keep that in mind!

  • Amanda @ centsiblyrich Oct 24, 2016, 12:12 pm

    I’m on the frugality end of the spectrum, for sure. We’ve been a one-income family for the past 16 years and the only way we’ve been able to make it work and get ahead financially is to spend less. Though my husband has had salary increases over the years, he hasn’t taken on other, higher earning positions because he didn’t want to give up the incredible flexibility he has in his current position. We’ve chosen time over income and are content with our choices. That said, I’m all about side hustling to bring in a little extra! Now that our kids are getting older, we have more time to work on our side hustles.

    • Stefan Sharpe Oct 30, 2016, 5:43 pm

      Time is something you never get back! Experiences will always outweigh income for me so glad you went that route.

  • Matt @ Optimize Your Life Oct 24, 2016, 1:44 pm

    I’m somewhat of a centrist in this debate, although I suppose I lean frugal. When you look at the disturbingly large number of households making 6 figures per year and still living paycheck to paycheck, you quickly realize that earning more without frugality won’t get you anywhere. I’ve also turned down jobs with significant raises over my current job because they wouldn’t be a good lifestyle fit for me.

    That said, I am also a big advocate for diversifying your revenue streams, and extra income can certainly go a long way towards speeding up your path to FI if you can keep your spending in check.

    • Stefan Sharpe Oct 30, 2016, 5:43 pm

      Hard to argue with diversifying your streams. Right now if I include my blog I have three revenue streams. Hoping to get it to five before 30!

  • Dividends Down Under Oct 24, 2016, 4:48 pm

    Definitely get the spending under control, then turn onto earning more money. We have got all our spending habits set (probably for life) by being frugal with good research. There’s not much more we could do – so now we have to focus on earning more!


    • Stefan Sharpe Oct 30, 2016, 5:44 pm

      Good plan Trist! Those dividends are a great way to get that extra stream of income to increase

  • Apathy Ends Oct 24, 2016, 5:33 pm

    I lean to the earning more side of the equation as earnings aren’t capped. That is provided you halt lifestyle inflation (which could count as being frugal I guess?)

    I think negotiating a salary increase is way easier then finding areas to cut – plus it pays every year for the rest of your career

    • Stefan Sharpe Oct 30, 2016, 5:42 pm

      Once I hopefully negotiate my salary higher you can bet there will be a post on that! Higher salary helps you immediately and if you are looking to switch jobs.

  • Mustard Seed Money Oct 24, 2016, 6:36 pm

    I am definitely in the spend less category. Time is our most precious resource. I would much rather have less stuff and more time than more stuff and less time.

    With that said I’m all about pursuing your passions especially if that coincides with a side hustle.

    Great article, thanks for sharing!!!

    • Stefan Sharpe Oct 30, 2016, 5:45 pm

      Clutter is something we can all struggle with! Almost every passion can be turned into a hustle, just need to figure out how.

  • Finance Solver Oct 24, 2016, 9:14 pm

    Yes I agree completely!! Earning more is great and everything but it takes time to earn more. Side hustles, negotiating salary, etc. These aren’t controllable. Maybe a side hustle will be successful, maybe a negotiation will turn out successful.

    That’s why I look to fix things that I can control first then look for ways to earn more. Both are very important but if I had to prioritize, I would go with your prioritization. Great post!

    • Stefan Sharpe Oct 30, 2016, 5:46 pm

      Anything you can control, spending, needs to be taken advantage of! Thanks for sharing your thoughts bud

  • Jack Oct 27, 2016, 5:06 pm

    While I’m firmly in the “grow the gap” group aka “do both”, I recognize the limitations your situation can place you in.

    Maybe you’re in college and have to be frugal due to time and income constraints.

    Maybe you’re sole breadwinner in a large family and have no time to grow income.

    Maybe you’re just lazy and want to focus on maximizing your time not working.

    With those constraints in mind, the fastest way to get rich is to grow your income. If you can control your spending so your gap keeps growing faster than your expenses, the faster you grow your income, the faster you’ll get rich.

    Mind the gap!

    • Stefan Sharpe Oct 30, 2016, 5:48 pm

      The fastest way is definitely growing your income, hard to argue with that. The limit to cap your income is far higher than cutting expenses. However, like you said, not everybody has access to this. In America, it is far far easier than other countries.

  • Online Equipment Finance Company Oct 29, 2016, 11:27 pm

    Superb Debate!!

    Thanks for sharing the debate reports. There are two ways for live happy life. First, increase you income and make more money. Second, decrease you expenses and finishes the gap between income and expenses. That’s it.

    • Stefan Sharpe Oct 30, 2016, 5:38 pm

      I agree that is the way to go, thanks for sharing your thoughts!

  • Mr. Compounding @ Net Worth Is King Oct 30, 2016, 6:59 pm

    I’m big on living below your means. Although income is half of the equation, I think saving is much easier and faster than increasing income. Plus, no matter how much we make, we have to keep our spending under control if we want to build wealth and the more we make, the easier it should get.

    • Stefan Sharpe Oct 30, 2016, 10:31 pm

      That is exactly it! Make $100k, spend $100k, leaves you with no wealth. Without saving wealth will never grow.

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