One of the heated controversies in the personal finance world is whether you should focus on cutting your expenses or increasing your income. Team Cut Your Expenses argues that increasing your income won’t do much if you also inflate your lifestyle and spend more than you earn. Plenty of people have high incomes, yet, they are still living paycheck to paycheck. Team Increase Your Income argues that you shouldn’t “live within your means,” you should “expand your means.”
There is only so much expenses you can cut in your life and who wants to live a life of sacrifice and depravation. Why not increase your income as the potential of that is unlimited compared to saving a few bucks using a coupon. Team increase your income tells you that leaving below your means is depravation and cutting out lattes is unnecessarily, when you can just “expand your means.”
Increasing income by investing it is great but it takes money to make money. You need to be able to save money first to invest it. Building a business always sounds sexy and exciting, but it will most likely take a lot of work and time. There is no shortage of products out there trying to sell you on how you can increase your income. Some are scammy and shady, while others are probably truly trying to help the client. However, increasing your income will always require hard work and often times some luck. This doesn’t mean you should try. You absolutely should try to increase your income.
As frustrating it is to sometimes hear proponents of Team Increase Income bash frugality, sometimes Team Cut Your Expenses can be equally frustrating. Cutting coupons to save 25 cents and reusing dryer sheets is going to help you build wealth. And spending your valuable time doing these tasks will keep you from finding path to finding wealth. Another issue with those who tout frugality is when I read blogs where the writer shuns consumerism and embraces frugality and makes it appear as some unknown magic elixir. They write about how they cut out some costs in their lives a few years ago and will soon retire early. Wow, that easy right? Just don’t buy stuff you can’t afford! Yes, this is great advice but there’s something missing. A good INCOME! There are many who already shun consumerism and are frugal, but are doing it because that’s the only way they can get by. It cannot be disputed that it is much easier to save a large percentage of your income when you have a larger income. While it is impressive to have a high savings rate when other similarly high income people spend it all, it is obvious that Income Matters.
So which side is right? Most people love taking one side and forcefully arguing it. Maybe it’s someone who touts frugality but doesn’t know ways to increase his or her income. Maybe it’s a guru trying to sell you their product which will increase your income. Everyone chooses a side. Most people have an agenda. The real answer, however, is that both sides make valid points. But, why can’t you do both? Why can’t you cut down your expenses while trying to increase your income! With that said, frugality is the first step.
Frugality is the first step because it is much easier. Just follow the rule: Don’t buy stuff you can’t afford and don’t need! Voila! You’ve saved money. Call up internet provider and ask for a discount. Switch to generic brands. Find a more affordable cellphone plan. Cut cable television. Cook meals and bring your lunch to work. All actionable steps which can easily be taken which will save you money not just once but over the long term. No need to learn SEO or WordPress to build a blog telling other people how to make money by starting a blog. No need to create and sell an online course about how to build online courses to sell to people. No need to publish and market a book about how to make money publishing and marketing books. No need to learn the ins and outs of real estate investing. While these skills can be great and something you might want to learn to increase your income, let’s start with the low hanging fruit.
Frugality is also an essential first step if you have debt and/or low cash reserves. It is much harder to increase your income either through a business or investment if you have debt. One of my friends struggling with debt often talks about wanting to invest in stocks or start a side business, but is struggling with a large credit card burden. How are you going to invest money in stocks or invest money in starting a business when you’re in a ton of debt? It would be akin to going for a brisk walk in the mornings as exercise, while eating hamburgers, fries and soda at lunch every day.
Once you’ve gotten your expenses under control, you should focus on income. Obviously, there are things that you can do concurrently, like learning new skills to find a better paying job, looking for a better job, asking your current employer for a raise, or working on a side hustle with low start up costs. However, if you plan on increasing your income by starting a business or investing in stocks or real estate, you’ll need some money. Having your expenses under control will form the foundation for you to increase your income. You will have money to invest in either your business or in stocks/real estate. You will also have an emergency fund as a buffer so that you are not at financial risk if you suffer a setback. That emergency fund will give you the courage to find a better paying job or start your own business.
Are you on Team Cut Your Expenses or Team Increase Your Income or both?