We all have financial goals that we want to achieve. Some want to retire early, buy a house or send their kids to college. Others just want to get out from a mountain of debt and start building positive net worth.
Nearly everyone who’s ever read an article on personal finance can tell you to spend less than you earn. While that’s great advice, and following it will put you on solid financial footing, we need to go a step beyond to start making progress towards our goals. It’s this next step where the finance blogosphere starts to diverge into two main camps.
The first is the camp that focuses on cutting any and all unnecessary spending out of your life in order to free up more cash to meet your goals with. The second camp focuses on maximizing your earning potential, because the more money you make, the more you’ll be able to funnel towards your financial goals.
As with any great debate there are pros and cons to both arguments.
Spending less is the easier of the two options. If you want to cut $100 of spending out of your monthly budget you can simply stop eating out so often, quit buying rounds of drinks every saturday night, or make smarter consumer choices like going prepaid with your smartphone. Cutting out spending is also faster, you can make changes and see results immediately. If I cancel my gym membership or cancel my DirecTV subscription I reap the monetary benefits by simply making a phone call or two.
There are even people who take this approach to extremes and live minimalist lifestyles shunning most of the consumer wants and “needs” the rest of us have. They choose to live with the bare minimum needed to support what they consider is a comfortable lifestyle.
The problem with cutting spending, even to extreme measures is that there is only so far you can go. You can cancel your TV & internet service, start biking to work and eat nothing but 25¢ ramen noodles for every meal. But at the end of the day there is only so much you can cut out of your life.
Don’t get me wrong, spending less works. Depending on your goals it may be all you need to do to reach them. I have the utmost respect for people that live in a studio apartment with 3 roommates in the name of saving enough money to be able to quit their jobs. But that’s not a lifestyle I have any interest in pursuing, and I question how sustainable it can be. What do you do when you hit your goal? Are you going to keep on living like a poor college student forever?
So maybe spending less isn’t the answer to all our financial problems. Let’s check out how we’d fare making more money!
Some people lean towards spending less because earning more money is hard. Let’s face it, if it was simple we’d all be making millions and shopping in Monaco. That doesn’t mean that earning more money is impossible by any means. It can be as easy as selling some of your old stuff on Craigslist, as hard as starting your own business, or as uncomfortable as asking your boss for a raise.
The best part of earning more money is that the sky’s the limit to how much you can earn. While there are only so many things you can stop spending on, there is no cap on how much money you can possibly earn or how many ways you can earn it.
You’ll see the make more money crowd preach turning your hobbies into money-making “side hustles” and creating passive income from a thousand different sources. Some simply focus on how to climb the corporate ladder and maximize your earning potential at your current job.
While we all want to make more money, there are some drawbacks to counting on earning more to reach your goals. For starters, making more money takes time. Even if it’s just something on the side, building a business takes time (and sometimes money) to get going. Making more money is also less certain. While I know that canceling my TV service will mean $100/month more in my pocket, I can’t be sure that my great idea for a website will ever result in a dime of profit.
Which Side To Choose
While I did make a pledge to save half of my income this year, if you put a gun to my head and made me choose one side over the other I’d lean towards earning more money. Simply because I like nice things and don’t want to give up all that much!
As is probably obvious, it’s going to take a combination of both schools of thought to meet all of your financial goals. You can earn all the money in the world, but if your spending is out of control you’ll end up in as much financial trouble as anyone making next to nothing. Just look at all the pro athletes that end up broke a few short years after their playing days are done. On the flip side, cutting your spending down to the minimum will save you more money, but you’re never going to become a millionaire if you don’t make some decent money as well.
Cutting the dead weight out of your budget and getting a handle on your spending will put you on the right track. But getting motivated and finding ways to increase your earning power will really propel you towards the goals you’ve set.
Readers: Which side of the aisle do you fall on? Do you focus more on saving the money you make, or do you focus on earning as much as possible?