2929: Spending Less Versus Earning More by ESI of ESI Money on Building Wealth & Investment Advice

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[00:00:39] This is Optimal Finance Daily, Spending Less Versus Earning More by ESI of ESIMoney.com. And I'm your host and personal finance enthusiast, Diana Merriam.

[00:00:53] For now, let's get to today's post as we continue optimizing your life. Spending Less Versus Earning More by ESI of ESIMoney.com.

[00:01:09] If you've been reading personal finance articles for more than 10 seconds, it's likely you've heard that you need to spend less than you earn. But it goes way beyond that. That's just the soundbite.

[00:01:21] A bit deeper there is a lot of online discussion about which is more important to financial success, spending less or earning more. It's an age-old money debate, similar to paying off a mortgage versus investing more, which may never be decided.

[00:01:39] There are heated and valuable opinions on both sides of the issue. I'm probably not going to sway anyone one way or the other, and that's really not my intention anyway.

[00:01:49] I'd simply like to look at the two options and chat about them a bit. Then the fun can begin. You can give your two cents on the topic.

[00:01:58] Earn More or Spend Less

[00:02:00] Before we get started, let me say that throughout this post, I use spend less and control spending interchangeably.

[00:02:07] I do recognize that they have different meanings, but since they encompass the same spirit, which is watch, control, manage your spending, I use them both.

[00:02:16] If you're part of the internet word police, please forgive me.

[00:02:20] Now let's get started by looking at the pros and cons of each option.

[00:02:25] Earning more.

[00:02:27] Number one, bigger potential upside to your finances.

[00:02:31] In theory, your earnings are limitless, though in practicality they are limited.

[00:02:37] That said, I think people often have much more earning potential than they give themselves credit for.

[00:02:43] Number two, it allows you to enjoy more of life's pleasures while still saving.

[00:02:48] For instance, if you want to save 15 grand per year,

[00:02:51] If you make 100 grand, you have 85 grand left over for vacations, hobbies, conveniences, etc.

[00:02:58] If you make 50 grand, you have 35 grand left over.

[00:03:02] The higher income person can spend a ton more and still meet their savings goals.

[00:03:08] By the way, this is exactly our life situation.

[00:03:10] We saved a ton, but since we have a high income, it also allows us to spend and give as we'd like.

[00:03:17] Number three, it takes longer to have an impact.

[00:03:21] It's not like you can go out tomorrow and earn an extra $20,000 on a whim.

[00:03:26] At least not if you don't want to risk jail time.

[00:03:29] Number four, opportunities to earn more could be limited.

[00:03:33] Not everyone has the background, time, and skills to earn more, or at least much more.

[00:03:39] While I do think most people could earn more,

[00:03:41] the level of what that more is varies greatly from person to person.

[00:03:47] Spending less.

[00:03:48] Number one, it can have a quick impact on your finances.

[00:03:52] You can cut cable, vacations, and eating out today and see positive benefits immediately.

[00:03:59] There aren't many other ways to see an instant impact on your finances.

[00:04:04] Number two, a greater number of people, which is almost everyone, can cut spending versus earning more.

[00:04:12] Some will argue that people earning below a certain income can't cut spending.

[00:04:17] I recognize this, but a far greater percentage of people have the option to at least eliminate something than are doing so these days.

[00:04:26] Number three, spending can only be cut so much.

[00:04:30] There is a minimum cost of living for everyone, and as you get closer to it, the benefits of controlling spending go down.

[00:04:38] As you can see, both options have their pluses and minuses.

[00:04:42] That's one reason the debate goes round and round and never really gets resolved.

[00:04:47] What is most important?

[00:04:50] But let's say we had to choose one as being better than the other.

[00:04:54] Which would it be?

[00:04:55] If you say earning more, then someone's going to note that no matter how much you earn, you can spend it all.

[00:05:01] So earning more without controlling spending is a waste.

[00:05:05] If you say spending less, then someone's going to point out that many Americans are at an income level where they can't cut spending.

[00:05:12] Whether this is true or not for any one individual, it does make sense in theory.

[00:05:17] If you make 30 grand a year and live in New York City, there's not going to be a lot of excess cash sitting around, even if you're a miser.

[00:05:24] Which leaves us at an impasse, kind of.

[00:05:28] Let's see if you think this bridges the two.

[00:05:31] When starting out, earning more is more important.

[00:05:35] You probably have a low income and there's not much room for savings.

[00:05:39] So you need to focus on growing your career and maybe developing a side hustle so your income will grow steadily.

[00:05:46] As your income continues to grow, controlling spending becomes more important.

[00:05:51] Otherwise, you run the risk of spending all those hard-earned extra dollars.

[00:05:55] How does that sound to you?

[00:05:57] Both are important.

[00:05:59] The truth is they're both important and necessary to grow your net worth.

[00:06:04] In fact, the phrase spend less than you earn makes them both important because it interrelates the two.

[00:06:10] Spend less in relation to than you earn.

[00:06:14] What's most important is what I think the heart of spend less than you earn is getting at.

[00:06:20] The difference between spending and earning.

[00:06:22] Something I like to call the gap.

[00:06:24] In short, the larger the gap, the better.

[00:06:27] And of course, there are two ways to make the gap larger.

[00:06:31] I bet you can guess what they are.

[00:06:34] Yep.

[00:06:34] Earning more and spending less.

[00:06:36] To the extent that you can raise income but keep expenses level, that's good.

[00:06:41] And to the extent that you can keep income level but cut expenses, that's good too.

[00:06:47] But the real magic happens when you raise income and cut expenses.

[00:06:52] This makes your gap as large as it can be and supercharges your net worth growth.

[00:06:57] Now, some experts say you can't impact both.

[00:07:00] You need to focus on one to really make an impact.

[00:07:03] That's hogwash.

[00:07:05] You can certainly do both.

[00:07:07] In fact, that's what most millionaires do.

[00:07:09] They grow their incomes while controlling spending to make their gaps as large as possible.

[00:07:14] They then invest that gap and watch their wealth take off.

[00:07:18] How to make the most of each.

[00:07:21] Okay, so both spending less and making more are important.

[00:07:24] But what's the best way to do each?

[00:07:26] There are obviously thousands of tips for saving and making money.

[00:07:30] But here are the top options for each in my opinion.

[00:07:34] For saving money, you simply need to pick and choose where to be frugal.

[00:07:39] Decide what's important to you and spend on that in moderation.

[00:07:43] For stuff that's not important, cut as much as you can.

[00:07:46] This is a good balance between living and enjoying your life while also keeping costs low.

[00:07:51] I call it moderate and selective frugality.

[00:07:54] If you want to focus on exact ways to cut spending, get my free e-series on the 52 best ways to save money.

[00:08:03] For making money, your career is where it's at since it's your biggest financial asset.

[00:08:08] By simply taking a few steps to grow your career, you can make an extra million or two over the course of a working lifetime.

[00:08:16] I personally recommend a side hustle as well, since the numbers show what a huge difference one can make in your finances.

[00:08:23] If you concentrate on these simple tips, you'll be well ahead of most people financially and on your way to making your gap as large as possible.

[00:08:33] From there, you can pour gas on the fire to ignite your net worth.

[00:08:37] Adding another way to make money here and a big money saving tip there.

[00:08:45] You just listened to the post titled, Spending Less vs. Earning More by ESI of ESIMoney.com.

[00:08:53] And I'll be right back with my commentary.

[00:08:56] I think another thing to keep in mind when considering earning more is the potential for burnout.

[00:09:03] Higher paid jobs and climbing the corporate ladder may mean more responsibility and time at work.

[00:09:09] So consider if the additional income is worth the trade-off.

[00:09:13] And when it comes to side hustles, one strategy to avoid burnout is to choose a side hustle that is also just an enjoyable way to spend your time.

[00:09:24] Fun fact about me, hosting this podcast is actually my first paying side hustle.

[00:09:30] While the extra income is certainly a plus, more importantly, I'm having a ton of fun doing this.

[00:09:36] When it comes to the debate about which is more important, spending less or earning more, I have to agree with ESI here and say, focus on both.

[00:09:45] That's certainly how I've gone about it.

[00:09:48] I've gotten myself to a good place of keeping my expenses low, especially in those areas of housing, transportation and food.

[00:09:55] Now I mostly focus on not letting lifestyle inflation creep in as my income increases.

[00:10:02] This allows me to continue to maintain and grow the gap between my income and expenses so I can save and invest the difference.

[00:10:11] And that will do it for today.

[00:10:13] Have a great day and weekend.

[00:10:14] Thank you for listening.

[00:10:15] And I'll be back here tomorrow where your optimal life awaits.

[00:10:19] Thanks.

[00:10:19] We'll be right back.