Several readers have commented recently that they would like to hear more about how to earn more and less about how to spend less. While earning more is a worthy goal — after all, you can never save more than you earn — I acknowledge that I am biased toward saving over earning in both my writing and my own personal life. Why? For one, I am better at saving. For another, having earned less than $5,000 last year (not counting joint investments), I am not particularly qualified to write about earning a high salary (Writing is my second, part-time job. My primary, full-time job — parenting — is unpaid). Beyond these personal reasons, I believe that it’s valuable for everyone seeking financial stability to devote at least some time and effort to spending less. Here’s why:
First, while some people will try to convince you that increasing your income is simple and can be accomplished without fail in just a few specific steps, that just isn’t the case. (If you could control your income easily, wouldn’t you already be earning more than you do now?) You can increase your chances at getting a good salary by earning a degree, practicing interviewing skills, polishing your resume, and networking with the right people, but even these practices don’t guarantee that the right job will be open at the right time — nor that you will be the most qualified applicant for that job. You can ask for a raise, but you might not get it. You can learn how to invest wisely, but investments depend on overall economic conditions and fluctuations in the stock market. Your earning power is largely out of your control. You don’t have complete control over your spending, either — you always have to buy at least a few necessities — but you have more control over spending than earning.
Most ways to control spending can apply to a broader group of people than ways to increase income, which vary greatly according to occupation, location and personal temperament. You are much more likely to be able to save the way I save than to earn the way I earn. For this reason, advice on spending less is easier for personal finance bloggers to pass along than advice on earning more.
I have already noted that you have to make money to save money, but many times, you also need to save money to make more money. You need money in the bank to buy a stock or mutual fund; you may also need cash to take advantage of certain business opportunities and special offers. In fact, if you find yourself in an emergency situation without enough money to cover it and have to go into debt, you can actually lose money because you have not saved.
While I have certainly heard some horror stories about people losing their life’s savings through no fault of their own, I know I have heard far more stories about people suddenly losing their income. Job layoffs, demotions, and disabling diseases and accidents seem far more common than mishandled pension funds and untraceable con artists. Those who have saved money by spending less tend to adjust to an unexpected loss of income much more easily than those who have focused exclusively on earning, who are often left in debt and accustomed to an extravagant lifestyle. Plus, those who have saved usually have their savings to help them if they do unexpectedly lose income.
Incidentally, few people are likely to increase their savings solely because they have learned how to make more money. It isn’t necessarily the case that people who have high incomes save more than those with low incomes, though it seems that it should be so. Spending tends to increase as income increases, and anyone who isn’t saving at his current income level is unlikely to start saving when he makes more. Meanwhile, someone who learns to save at a low or moderate income can save even more when his income increases. Whatever you make, start saving now by spending less — don’t wait until you’ve learned how to earn more.
Increasing your income usually requires many more hours of work than decreasing your spending does. Those who earn a high salary often find themselves with little time to enjoy the things they can afford buy. Conversely, those who deliberately choose to work less usually have to learn how to live on less. Working fewer hours and having time for other priorities is another great reason to focus on spending less over earning more. Not only do you get to do things you enjoy, but you are also likely to discover that life is about more than money.
With that said, I do encourage you to find ways to increase your income, particularly if you can earn more money without spending significantly more time and attention on work. A higher income can certainly boost your savings — but only if you already know how to keep your spending down.
Image courtesy of seibu1