Frugality has become popular as a way to help cope with an economy where jobs, raises and promotions are harder to find and to hold on to than they have been in nearly a human lifetime. But there?s a fundamental problem with relying exclusively on frugality to deal with the high cost of living. You can only cut costs so much and once you reach that level, the only real option is to make more money.
How much can you cut before you can?t cut anymore
I suppose that in theory you could lower your living expenses all the way to zero – if you were willing to go ?off the grid?. That would involve living in a tent in the back woods, hunting, fishing and growing your own food, heating and cooking with firewood, and drinking and bathing in a local creek. I don?t mean to insult anyone, but most of us could never live that way, and that means we?ll always have living expenses.
The question is, how far can you cut those expenses? Sure you could lower your housing costs by moving farther from the job market, but then what do you do for employment? You could ditch your car and ride a bike instead, but that would limit your employment opportunities. And then there?s health insurance, food, utilities and all the other expenses that go into modern life.
You can lower all those expenses to some degree, but at a certain point you begin restricting your income earning abilities as well, lowering your living standard to an unacceptable level, and maybe even putting your health at risk.
Even if you could keep cutting costs, there are complications that make it less effective than we might think.
The cost of living is rising – and shows no sign of stopping
Cutting costs would be a more effective strategy if the value of your income dollars remained truly constant, but they don?t. Because of inflation, you can cut expenses and still find yourself with less money.
For example, according to the Bureau of Labor Statistics, the cost of living has risen by?26% from 2004 to 2014. If you earned $1,000 a week in 2004, you?d need to earn $1,262 in 2014 just to stay even! And that?s during a period of what?s considered to be low inflation!
But that?s only half the story; the other half is?
Salaries are stagnating
Yes, some people have seen their incomes rise more than 26% in the past decade, but millions have seen lower salary increases over that time. Many more have gone through periods of extended unemployment in the past few years and have been unable to earn as much as they used to.
Combining income stagnation with inflation is a double edged sword that?s causing many to experience declines in their standards of living. Against this backdrop, they cut living expenses but still feel as if they?re falling behind.
When the only solution is to make more money
When cutting costs is doing little more than keeping you from falling through the cracks, or when it becomes apparent that you?re still falling behind it?s time to add something else to the mix. It?s time to make more money. How can you do this?
Look for ways to make more money with your present employer. Can you work yourself into a promotion? Is there a bonus program available to you that you can take greater part in? Is there a position you can move into that will enable you to make more money?
Get a higher paying job with another employer. If there?s no way to make more money with your current employer, maybe it?s time to sell yourself to a competitor. Failing that, is there another industry where your skills would fit and you?d have a chance to make more money than you are now?
Get a second job. In many fields the job market is tight and increasing income will be problematic. If that?s the case, you may have to look for additional income sources. A second job will not only create an additional income source, but it may also provide you with additional skills that will enable you to get a higher paying full time job down the road.
Start your own business on the side. This is similar to getting a second job, except that you work for yourself. There are all kinds of businesses you can go into that can be done in your spare time and in combination with a full time job. Blogging and freelance blog writing are two that I?m doing, and both are work-at-home situations that you can work at and build at your own pace. Anything related to tutoring is another possibility. Kids need help with school work and music, but adults need help with learning English (or any other language you know), fitness, basic auto repair, computer software programs and just about anything you can think of. Make a list of what it is you?re good at, and give strong consideration to offering yourself out as a tutor.
Cutting costs is important, but once you?ve cut all that you reasonably can, it?s time to look at the other side of your income and expense statement?the income side. If you can make more money while cutting costs, you might just find yourself on your way to a whole new time of personal prosperity – no matter what the economy is doing.
Are you getting frustrated over trying to make your income go farther, only to find out that you really aren?t getting anywhere? Have you worked on making more money as a solution?
It’s time to make some money. Keep more motivate to make money =)
I agree with John, it’s time to make more money. I think I’ll look into a part time job, maybe something fun that will relieve the stress of my day job.
John and Charlotte–I think that part fo the problem with cutting costs is that you develop a seige mentality, and that has you looking inward all the time. But the other half of money problems is external, as in getting out to make more money. Utlimately that’s the long term soloution. Cut costs, sure, but earning more money is the way forward.
Sometimes you can only cut so much before it’s time to bump those earnings up. I think they’re two sides to the same coin – earn more and spend less to get to the point where you can get ahead!
Hi Pete–Agreed, both are necessary. To use a sports analogy, cutting expenses is your defense, earning money is your offense. You can win games with a strong defense, but you still have to score points. And scoring a lot of them feels a lot better than always digging in to prevent losses.
Great post, Kevin! I especially like the sports metaphor in your comment to Pete. It really is unfortunate that salaries are stagnating while the cost of living is rising- people are overworking themselves just to put food on the table.
Hi Jennifer–It really has come down to find ways to work around that set of problems. Cutting costs is certainly one way to do it, but eventually that becomes less effective since you’re forced to cut deeper each time. Sooner or later, the only way forward is to make more money.
Great post Kevin. It’s really hard to make both ends meet in the present scenario. Making more money is the better option now. However hard we try to curb our expenses, we fail to balance the equation.
Hi Martha–I think the disavantage with cutting expenses is that costs are rising all the time. Sure you have to cut costs, but you also need to increase income in order to move forward–ie, increase savings, pay down debt, etc.
I agree increasing your earning potential is key. You can only save and skimp so much. One’s earning potential on the other hand can be almost unlimited! Great post.
Thanks Shane! I don’t want to imply that being frugal is a waste of time, but increasing your income really needs to be the priority for most people in most situations.
I am finding more and more that the longer I have been trying to reduce my amount of debt, I am at the bare minimum. I have nothing left that I can cut in order to save more money. So, I have come to terms that I need to find more jobs and to side hustle as much as I can in order to bring in extra income.
Hi Michelle – Maybe you can “attach” the side hustle to your debt – you’ll keep it until the debt is paid. Once it is, the missing debt payment(s) will be like a fresh income stream, then you can reduce or eliminate the side hustle. That might make it more manageable from an emotional standpoint.
Kevin, do you ever have those moments when something just hits you as perfectly right? Because I just had one with your phrase “siege mentality” in the comments section! That is exactly what is going on for me, or at least how it feels. The problem is, how do you get OUT of that mentality when your standard of living really is under siege? (Well, okay, I’m getting a degree, but that doesn’t help with my bills NOW. :P)
Hi Ms. LoL – In such a situation, I like “financial guerilla warfare”. You get rid of what ever you don’t absolutely need, and cut down on everything else, until you reach the point of equilibrium. At that point, you may be able to see your way clear to focus on what will improve your life, rather than just keep you afloat. You can’t stay in a siege mentality for too long, because it’s a toxic mindset. Your mind is what’s under siege and that makes it impossible to see your way clear.
Does that make sense? I know it’s easier said than done, but the time does come in life when the only choice is to make tough decisions and stick to them. By tough I mean you might have to take drastic steps, such as changing your living arrangement, or going without a car, or stretching out your schooling to leave more time to create income. Everyone’s situation is different, and you have to do what works for you, but inaction is usually the worst option.
I understand stagnate salaries. I became a gov’t employee during the period where there was a 3-yr pay freeze. We did finally get a 1% increase, but that was erased by inflation and the increase amount we have to pay into retirement.
I like my job, but I am strongly considering going back into the private sector. Its a little more risky, but the pay is better
Hi Nikki – The better pay in the private sector really depends on where in it you are, and what your career field is. A lot of private sector jobs have seen stagnant wages + layoffs. Tread lightly!!!
I completely agree. You can only save and cut so much before it becomes apparent that more money is needed to make a bigger dent in reducing your debt.
Hi Michelle – I think that sometimes we become hyper-focused on saving money because we don’t want to earn extra money, because the effort to earn it can take us out of our comfort zone. But I think of it as time to build a new comfort zone! And you never know what opportunities will come your way as you pursue fresh income sources.
Your right, there is only so much you can do before you have exhausted that avenue of “adding money into your budget”. My husband has been working all of the overtime he can, and I am finding ways to earn money at home while taking care of our two boys. It’s a lot of long hours but when we are debt free, it will be worth it.
Congratulations Tennille, a lot of people try to become debt-free but it never happens. The combination of cutting expenses and increasing income is really the only way to get out once you’re deep in. Hopefully now you have more time with the kids and some extra money to save so that you never have to rely on credit again.