Earn More vs. Spend Less Throwdown
What’s more important: increasing income or decreasing spending? The debate rages on, but unfortunately many answers miss the crux of the matter.
After a year and half of talking a lot of thrift, we recently broached the income side. To be honest, much of our financial progress has been supported by an above-average income. Yet we’re a one-income family living on less than half our take-home pay. We spend less than average and that makes an impact, too.
Many argue that you can increase your income by greater magnitudes than you can slash spending. But people often find their budget feeling tight even after their income grows. If you spend more than you make, it doesn’t matter how much you make. You never get ahead.
So what’s more important—your income side or your spending? Whichever one you need to work on. It depends on the person. I can’t tell you which that is for you, but I hope the case studies and questions below will help.
Consider two case studies of real-life families:
Family 1 was often running low on money despite having a very good income. They cited their house, having a baby, and medical expenses as some of the reasons for having cash flow problems. They were right that their spending was the problem, but were citing reasonable expenses instead of looking to the ones they could decrease.
Over time, resources from Dave Ramsey helped motivate them to reassess. They were eating out multiple times each week. They were paying for gym memberships they didn’t use. They were buying convenience items. One partner was smoking. They had a car payment and student loans. Once they started cutting back in these areas, they were able to pay off their car and student loans early. They built enough equity to stop paying PMI. The smoker quit. They started cooking at home. They identified that the problem was spending, acted accordingly, and have continued to make huge strides toward financial flexibility.
Family 2 was often close to broke, but one spouse’s father would cover what they couldn’t on a monthly basis. He even gifted them a down payment on a house. The only problem was that they couldn’t really afford the monthly mortgage payments. When they had their first child, the wife left her job to stay home. The husband worked in a field with limited earning potential. They still had student loans from his associate’s degree.
While their bills were paid, they had a serious income problem: part of their income was coming in the form of regular gifts. While this was very generous, it was ultimately unhelpful. It didn’t allow the family to attack their finances from the income side, which desperately needed attention. Both partners were capable of earning more but weren’t sure how to make it happen.
See how landing on just income or just spending doesn’t solve the problem for all situations?
Do You Need to Hustle?
If you’re underearning, dissatisfied with your job, or aren’t making enough to get by, you need to work more, harder, and/or smarter. You absolutely need to attack the income side so you can gain flexibility and not have money be the limiting factor in every life decision. You need a raise, a career move, a second job or other side hustle. Here’s how we stopped underearning by overstaying at the same company.
Know when it’s time to move on. Research your value in the market. Negotiate a raise if you’re underpaid. Assess what you’d be willing to do to make more money: would you work overtime, change companies, relocate, change careers, or start a side hustle or small business?
At some point, working more, harder, or sometimes even smarter becomes undesirable as it detracts your time and physical and mental energy from what you’d rather be doing. A common belief states if you could possibly make more money, you should. I disagree. There’s a lot more to life than pushing your earning potential to its outer limits, at any cost to other areas of your life. Always keep your real worth in the balance with your net worth.
Do You Need to Cut Back?
Do you have a good income and still find yourself broke? Do your expenses rise steadily alongside your income? Do you know how much you spend on average in a month? Are impulse purchases, going out, or recreational shopping frequent for you? Look to your spending for solutions.
I sense that people from relatively affluent homes are more likely to need to work on this side. People with the advantages of the middle and upper-middle class are more likely to earn good incomes. They’re also more likely to be acclimated to a “comfortable” lifestyle that may have taken decades for their parents to build, but they aim for as soon as they land their first job.
Whatever your background, don’t dismiss the expense side of the equation until you have a handle on how much you spend, and on what. It’s easy to say, if I only made as much as her, or if we could just catch a break from special expenses cropping up, then we could get ahead. But if you’re making decent money and not saving it or paying down debt, more money isn’t going to fix the problem.
In summary, my answer to the income vs. expenses debate is that you need to work on the area where you’re weaker until you gain traction. In some cases, you’ll need to work on both. But you simply can’t assess which one it is for you unless you have a good picture of your financial situation. We approach this by tracking our spending and creating an annual budget.
Review the last few months of your income and spending to catch a snapshot of both angles. If you cut, cut, cut, and there’s still not enough income, increase the input. If you earn, earn, earn and never find it to be enough, it’s time to decrease the output. Underearning and overspending are both a waste of precious resources.
A healthy financial situation looks like being happy with both your income and spending, while staying open to improving both sides. Once you reach this point you’re free to focus more on the angle that’s your strength.
What are your financial strengths? How have you improved your weaknesses? Any other takes on the income vs. expense debate?
The example of family #2 really hits close to home, as I have a close friend in much the same situation. Her in-laws are giving them a down payment, but they live in a very expensive city, and I seriously worry about their ability to save anything with the mortgage payment they’ll be taking on. They’re also a perfect example — or at least her husband is — of someone who grew up well to do and therefore has a baseline level of spending to support his cushy life that’s downright shocking. Sadly, my friend has gotten sucked into his way of thinking. I try my best not to judge or criticize, but it’s hard to stand by and watch it happen!
Sorry to hear your friend is in this situation. I think there is a huge difference between judging or criticizing, and being genuinely concerned for a direction that seems unsustainable. I’m sure you want the best for your friend!
It definitely depends on the situation. Most people have some room to cut back in their budget, and making some changes would help them quite a bit. But if you have already cut back, earning more is the best way to get ahead.
We have cut back about as far as we want to go, so now we focus mostly on earning more.
I agree that many people have room to cut back and it’s worth taking a look at that angle. That’s great you’ve found the right spending point for your family and can focus on the other side now.
I think it’s important to work on both sides. Combining the two can really swing momentum in your favor to obtaining your money goals quickly. Once we were able to stabilize our spending and debt, I was able to take a job with a better work/life balance. The overall income was not as great, but if gave me back my time which is priceless.
I’m so glad to hear you were able to take a different job with more balance, even if that meant somewhat of a pay cut. There are definitely times when earning more isn’t worth it, and lower expenses can make that possible. I agree that is makes sense to work both angles, but sometimes it’s hard to focus on everything at once and need to choose a starting point.
Great post! It is very important to not neglect one area or the other, both are important pieces to the equation. I like the way you have laid it out, determining which one is the weakness and attacking it.
Ever since my wife and I graduated college and started earning money, we have been keeping a close eye on both. We have always kept the screws tight on the expense side, while trying to find ways to get ahead in our careers as well.
I think it’s pretty rare for people to have their eye on both areas since college graduation–so congrats on that! Both are absolutely important, but sometimes it’s hard to focus on both at once which is why I think it helps to discern the right starting point for your situation.
Case #2 is something I’ve watched happen to close family over the past 20+ years and it has motivated me to ensure my kids learn the value of money, so they get very little extra from us besides covering their basic needs. Some family members think we’re mean, but I’ve seen what can happen when money is just handed over.
On the topic of income versus spending, I agree with you. It really boils down to minding the difference between income and spending and adjusting accordingly. Everyone is different on which area they need/want to focus on. Since we’ve been a one-income family for 15+ years, we’ve really focused on the saving side (with a little side hustling now and then!).
Sorry to hear about your family’s situation. That is really hard to watch (and feel powerless), but what a great takeaway to teach your kids the value of money and not dish out a lot of extras. Thanks for weighing in from the single-income family camp! After a certain point financially, it really is okay to pick and choose which side you want to work on.
We’re definitely working on both sides of the equation. There is so much debt still to payoff AND we need to have more freedom as soon as possible.
I like your advice to focus on the weakest area, but for us the fastest gains are possible due to saving and increasing our income. It’s a lot of work, but the reward will so be worth the effort.
Working on both will absolutely yield quicker progress, and that’s great that you’re able to focus on both at once. It sounds like having a big goal in mind is helping energize all that hard work.
This is really specific to the person’s situation in my opinion, but I think there are a huge number of 20- and 30-somethings that are in debt and would benefit greatly from earning more. Some things you can cut back on like housing costs, travel, eating out, etc., but you can only cut so far. If you have $1,500 or even $2,500 a month in debt payments you simply can’t “cut” those back – if anything you need to increase the amount you are paying! So I’m definitely in the “earn more” camp.
Yes, if you can’t pay your bills (including debt), or have a lot of debt, you definitely need to work on the income angle. I’ve also seen plenty of situations where people are earning enough to pay off their debt, but for whatever reason haven’t chosen to do so. That’s why assessing both sides is so important–but in the case you’ve mentioned, earning enough is critical.
You make many fine distinctions in this post, Katie. I think it is valuable for most people to have an understanding of how to increase income and decrease spending, as personal financial situations can change in a hurry.
I can relate to the couple you described that overspent on dining out; that’s my vice, for sure. Fortunately, my wife and I make up for it in other areas of our budget.
Great point–it’s good to know how to do both because you never know what will happen. It’s good that you’re aware dining out is a possible problem area for you and your wife, and are balancing the budget elsewhere.
I’ve been on the “save more” side of money for a long time due to working low-wage jobs and making big debt payments. I’ve gone through the behavior shifting of seeing needs vs. wants and cutting back the unnecessary.
I like to advocate for the “earn more” side because besides the obvious benefit of earning more money, it helps me with time management, developing my skills, and satisfying a creative itch I otherwise wouldn’t have been able to do.
I’m glad to hear you’ve been able to work on both sides in turn. Great points about the non-financial benefits of increasing income. I agree that learning more skills, being more productive, and managing time better are all wonderful things to learn from that.
“So what’s more important—your income side or your spending? Whichever one you need to work on.” This is so true!
Although I don’t think there is a one size fits all answer to the income v. spending debate, I’m a big believer in quick wins and minor victories. Cutting expenses is usually easier and faster than increasing your income. I think it’s important to taste a bit of success along the way, especially when first starting out on a financial journey, so that you don’t get discouraged and quit.
Great point–sometimes we need quick results to gain momentum and stay motivated. Cutting expenses definitely yields faster results, at least initially.
I agree that it depends on the situation. For some, they may really only need to focus on one area. Others need to focus on both.
I also agree that for those who grow up in middle-class or well off homes, it’s easy to want to keep up that comfortable lifestyle – even though it took your parents years to build it. Another important thing to keep in mind is that your parents might not be doing as well financially as you think they are. I always thought my parents were more well off than they actually were because they were financing their lives with credit card debt. I don’t want to find myself in a similar situation, so I live extremely frugally in order to pay off my debt.
My family was similar–definitely some consumer debt funding the lifestyle. I was aware of this and for whatever reason, decided I didn’t want to live that way. It takes a conscious decision at some point to resist the trend toward that, though.
Definitely in the spend less camp at the moment. 2 very small sons and a stay at home mom means we all survive on my salary, and Mrs. E squeezes every dollar til Washington begs for mercy.
This lets us not just live on one income, but still pay extra on the mortgage, max my 401k, and make IRA contributions for both of us, among other things. It’s tight, but it just depends on your focus and priorities.
Well said. We are in the same boat, and it’s totally worth it to focus on spending less if that allows you to have more time with your family, while also making solid financial progress. That’s great you’re able to!
Definitely in the earn more camp. I’ve always been frugal and so where the real difference has come is by amping up my earnings. Huge difference, and so satisfying! Whether it’s one or the other or a mix of both, the key is maximising that gap between income and spending.
I definitely follow Paula Pant’s method: “Mind the Gap”. Just focus on making the gap between what you spend and what you earn as large as possible. I’ve worked on reducing my spending, and now am switching my focus on earning more. Love you both for being proponents of the middle ground on this issue!
I appreciated Paula’s article on the topic, though I reach a limit of what I’m willing to sacrifice before I get to making the gap “as large as possible.” As I’m sure most people do. That’s great you’d focused on each area in turn and had success!
I’ve found earning more to be a whole lot easier than spending less, especially in these early-career years. This is in part, I’d like to think, because I’ve been pretty mindful of my spending to begin with.
If you’re already conscious of your spending, the beginning of your career is a great time to think about how to grow your career and income. Glad to hear you’ve had your spending under control from the start!