Earn More vs. Spend Less: Attacking Financial Freedom from Both Ends

The endless debate. Earn More? Spend Less? Which is more important? Why is it important? Where do I focus my energy?

Camp #1: Earn More
Is more better? Ask a five year old. Of course he’ll say yes. He would rather have 10 pieces of candy than 8. This tends to be the current theme of development. More growth is always better. Earning more is always better. Higher wages, higher employment, more money, more stuff, and bigger things. America has been operating on this adage since the turn of the century.

From a financial perspective, is more better? I think the question that needs to be addressed is twofold. First: What is enough? Second: What am I trying to accomplish? One of the most unique things about America is that we have an incredibly high spread between our average middle class wage and an efficient middle class standard of living (Is America the best place to grow a money mustache?).

So, should we focus on earning more? It seems like that is indeed the case. I think earning more can be extremely helpful and it is a very important part of financial independence. The trick is: earning more doesn’t help you achieve your goal if your expenses and expectations continue to rise along with it. Often earning more is the key, but read on and we’ll attempt to discern the difference.

Camp #2: Spend Less
It is impossible to obtain financial freedom without some level of contentment. You can’t out-earn discontentment. To be honest, finances, similar to weight loss, have more to do with psychology than earning. What does it take for you to be content? Is it mental? Where did you come up with this idea? Family? Friends? Neighbors? Media? TV?

To be honest, I feel like spending less deserves more attention than it gets (partially because it’s a lot easier to make money in the ‘earn more’ field). In fact, the majority of middle class American families already make enough money! However, they tend to be so inefficient with their spending that they spend all they make. So, how much do you spend? What would you have to change in your life to cut your spending in half? How much margin would you have if your income was twice what you spend?

How much does it take for you to be happy? Write down how much money you think it would take. A lot of people think about cutting out the latte but real change may be closer to selling a car, changing jobs, moving or something drastic. I do enjoy incremental changes but if the house is burning, you can’t move slowly.

Finding contentment without spending is the golden ticket. It is the key to financial independence and also a prosperous life.

Who is better off?
Someone who earns 50k and spends 40k or
someone who earns 100k and spends 110k?

Someone who enjoys a $5 bottle of wine or
someone who can’t drink it unless it cost $50?

How would you like it if your family could maintain the same level of contentment you currently have making 50k a year. What if you did it on 25k? What about 10k? How long would it take you to be financially free if you trained yourself to enjoy life on $10,000 a year*.

Honestly, once you start to become aware of discontentment around you, it actually makes you start to feel bad for the people who spend their life and time trying to placate themselves with more stuff. You feel bad for the sports star who makes millions but is miserable. You feel bad for your friends who are unhappy because they don’t have a new car or feel like their current lease is old. You pity the person who lives in a huge house but doesn’t even recognize or appreciate it. Maybe you feel bad for friends who keep working longer and longer hours on their quest to accumulate more.

Whether change is good or bad, people are surprisingly adaptable. I am always amazed when I realize how quickly I get accustom my surroundings. From a five star hotel in Macau to a tiny dorm in Mumbai, after a few days they both feel normal. What we realize with spending is how fast the feeling of new wears off. If you are not a happy person, having a million dollars will simply make you a millionaire that is not happy. Income and money bring us entertainment but relationships, children, time, nature, and sex are all things that provide lasting fulfillment that can’t be purchased with money.

Attacking Financial Freedom from Both Ends

You have arrived. This is where the numbers get fun. This is where contentment exist and freedom is obtained. This is where the pace of your life becomes sustainable. Think, just for a minute, what your life would look like if you doubled your income and cut your expenses in half. Contemplate that for a moment. Ask your friends or spouse or whoever is closest to you what it would feel like. Compute the numbers. What would it be like to have that much margin?

I love the idea of earning more. Earning more with a goal in mind is an express lane for financial freedom. Increasing income without increasing expenses proportionally is an incredible feeling. A jump in margin makes you feel rich. I love the idea of spending less. I love the idea of being less wasteful and more intentional. I like the idea of having more time and fewer distractions to pursue the things that are truly important. What I enjoy most is combining the two concepts.

So, quit chasing your tail. Figure out what is important to you and spend the time and energy to get there. Then work on flexing your attitude and train yourself to draw happiness from things that are actually important instead of trying to earn more points and status in the money accumulation game.

Feel free to add a comment about which you think is more important. Also, does it matter what stage of life you are in?

*For those in high expense areas: There is someone living in your exact city making half of what you do and enjoying life more.

3 thoughts on “Earn More vs. Spend Less: Attacking Financial Freedom from Both Ends

  1. I think that both earning more and spending less are important. However, our budget is absolutely bare bones at this point…so the only way to make additional progress is to work on earning more. Earning more is our goal for 2013 and so far we are doing great!

  2. That is awesome. I think we are still in the process of trying to be more content with what we have and examining areas of our finances where we are inefficient. I think the earn more side will come a little later down the road for us. Keep up all the good work and great post coming on ct!

  3. I agree that spending less deserves more attention. Particularly given that most people construct their financial lives in this order: Pay bills first>Spend on Fun stuff>Invest what’s left (which isn’t much). Even those who are responsible about paying for what they buy in cash and not carrying balances on credit cards rarely take a look at what those same bills include and are thus equally caught in the rat race.