Frugality is practically THE staple topic of the personal finance world. Hundreds of posts come out each week telling us how to save money on this or that expense, how to cut costs with more do-it-yourself efforts, where to get the best rates and rewards on credit cards, how to cut your taxes?you name it. And I confess that I regularly write of such topics myself. But at some level at least, it seems like we may be doing a disservice by focusing so heavily on only one side of the personal finance ledger, while giving short shrift to the other major component: income. I’m not saying that frugality isn’t important, but rather that earning more money is more important than frugality.
I?ve actually seen the earning more vs. frugality debate written about in a few places, buried among the scores of posts written on frugality and thrift. Maybe the reason is that frugality is easier to write about than making more money. What ever the reason, more balance is certainly needed.
Here are two facts inherent in the earning more money vs. frugality analysis:
1. Expenses can be cut only so far, short of ?living off the grid?
2. Income, at least in theory, has no limit
The bottom line is that while frugality can enable us to maintain our current financial status, only by increasing our income can we elevate ourselves.
The limits of being frugal and why some things are more important than frugality
As you?ll see in the final section of this post, I?m not anti-frugal at all. But at the same time, it?s important that we consider the limits of what being frugal can accomplish.
In and of itself, frugality doesn?t enable us to move forward. It?s mostly an effort to make living on our current incomes more tolerable. That?s a noble goal of course, but if you want more out of your life, being frugal alone isn?t the magic bullet that will take you there.
One of the major inherent limits of frugality is that it often is a trade off between our time and our money. Perhaps the primary reason any of us would be spendthrifts is because it?s a lifestyle that emphasizes convenience. Paying more money often means we get what we want faster and with less hassle.
Frugality requires time, time to look for better deals, to do research, to spend fixing things ourselves. The spendthrift has none of that to contend with, and while he will have demons of his own to face, the frugalista is not without a few demons either.
All that time spent looking for deals and fixing things is less time available for income increasing activities.
In addition, there?s a circle-the-wagons aspect of frugality that doesn?t lend itself well to reaching out into income expanding ventures. The mindset that serves frugality so well is often in direct contrast to the thinking required to make more money.
Why earning more money is more important
A millionaire computer entrepreneur in the Atlanta area was being interviewed by the local newspaper in one of those ?how I did it? articles. This guy come from a modest middle class background, started as an ordinary computer geek, worked harder than his peers, broke out on his own and built his own company.
Within a few years, his company was grossing several million dollars per year, and if I remember correctly, his multimillion dollar fortune came when he sold the company sometime in his late 30s.
I always find those real life rags-to-riches stories fascinating, but what I remember most about this one was a single comment he made, that I?ll paraphrase from memory?
?We don?t realize what we can accomplish once we break free from the constraints of being middle class. Once I broke out of that, there was nothing stopping me.?
Being middle class myself, and thinking that to be a good thing, I had to think about his comment a bit. He didn?t elaborate on ?the constraints of being middle class?, but I think it?s not too hard to figure out what he meant.
Fitz at Ready to be Rich gave an excellent analysis of the differences between the thinking of the rich and the middle class in The Real Gap Between The Rich and The Poor Is Not The Money.
He explains that the true difference between the three economic classes?rich, middle class and poor?is in the way they think about money and about life in general. The middle class is concerned mainly with security, comfort and paychecks, while the rich are focused on opportunity, freedom and delayed gratification, among other things.
The rich move forward because they?re purposeful in their drive to do so. The middle class tend to stay where they are, not because they don?t want to move ahead, but more because their primary drive is to keep what they have. This is similar to the mindset of the frugal that we discussed in the previous section.
The best of both worlds: doing both
Here?s my take on the balance between earning more income and frugality: for most people the relationship should be symbiotic, with one endeavor supporting the other.
Frugality should be used not only to enable us to live within our means, but also to get the fullest benefit from it while using the increased budgetary freedom in support of our efforts to make more money.
What can frugality do to help us to earn more money?
- It can free us from the stress of living on the edge of financial oblivion, of never knowing exactly how we?ll cover next months expenses. Stress interferes with what ever we plan to do; remove it, and the possibilities are endless.
- If we get really good at it, to where we can live on substantially less than we now earn, it might enable us to quit a job we don?t like in favor of a job or business venture we feel passionate about, even if it doesn?t pay as much as we make now. If we truly like what we?re doing, the chances of making more money may increase.
- It can enable us to save a sufficient amount of money that we eventually have enough to either invest in a business venture or a least to live without fear of losing our jobs.
- It can enable us to pay off our debts and to live debt free. Absent debt, we can live a cash-and-carry life that can free us up to do most anything we choose. That kind of independence usually leads to good things.
Frugality just for the sake of learning to live within our means can be a road to nowhere, a never ending quest to keep our heads above water. But attaching a higher meaning to it by connecting it with a future goal can energize the effort and provide us with the higher financial purpose needed to propel us on the way to true financial independence.
If you’re looking for a way to spend more time earning income to help your cash flow, check out my post, The Freelance Blog Writer Side Hustle. Even if you?ve never written professionally in the past, this post will help you get started converting your passions and interests into an income earning business that you can work in from the comfort of your own home.
Do you think that frugality is a goal all it?s own? Or do you think it?s an effort that should support other financial endeavors?
Frugality is setting the stage for the rest of your life, it allows you to maximize your opportunities to meet your other goals. Imagine if you had been frugal from the first day you finished high school. How much more capital would you have to do the things you now know you enjoy. Being frugal is the way you act when there is no good goal to spend your money or your time on.
Vitaeus – I prefer NOT to think of how much money I’d have if I’d been frugal since high school! (It’s mind boggling!)
I completely agree that frugality allows you to maximize your opportunities. That’s employing frugality as a tool, which is it’s true function.
The key line is “All that time spent looking for deals and fixing things is less time available for income increasing activities.”
When we chose to have someone mow our lawn for us (about 2 acres) it was precisely with this equation in mind. The time he spends mowing is time I can spend making money. The mowing guy charges a much lower hourly rate than my what I make.
However, I still tend to be frugal; I was brought up to be happy with whatever I want and not to enjoy waste. The lawn decision was easy only because I could see the ROI rationale…and because I hate sitting on a tractor for three hours at a time.
David – that’s really the key, figuring out what you could be making while you’d be doing household chores or clipping coupons. However, that really applies more to someone who is self-employed, commissioned or who has a lot of overtime, so that there actually is something to be making money at.
If you’re on a 9-5 straight salary and you’re off nights and weekends, it starts to look a bit different, unless you’re using the extra time for a side job or side business. And maybe that’s what we should be emphasizing rather than saving money at all costs…
What the Frugals miss sometimes is that you can be frugal to a point of being cheap, which actually costs you more in the long run.
At the same time, I could also look at every chore I have and say I don’t need to cook because I could be making money and therefore I’ll go to a restaurant and pay someone a much lower wage than what I could make and therefore go and blow a lot of coin on food.
I agree though, we need to do both. Earn as much as we can without being a workaholic and simplify our lifestyles as much as possible without being a stingy hoarder!
Jason, being cheap actually does cost! If we always buy on the cheap, we’re always fixing and replacing, which is only frugal in the short run. And we never want to be cheap with people, especially when giving is required.
Kevin, very good article. Thanks so much.
I’ve given a lot of time reading financial blogs. And especially about frugality. I think I’ve always been frugal, but I’ve learned to become even more.
What’s been good is applying some of these ideas. For instance, I’ve always eaten my lunch away from home. Now, hardly ever. And what I’m realizing is that it’s making me independent. I can learn to make my own healthy meals. (My cutting board is truly getting a work-out lately.) Also, by making these little changes, I find it’s not only less difficult, but that I’m better for it.
But to making more money. How true of everything you say. I can now stretch a $100 way more than ever before, but if I just work an hour in my business, I make $175. But if business is slow, I have the tools to make money last a lot longer, thanks to all these blogs. My personal favorites being Early Retirement Extreme, Get Rich Slowly,and mnmlist.
Get Rich Slowly is one of the very best and I’ve spend a good deal of time on it.
That’s a good perspective that if business is slow you can live on less. It highlights the ability of frugality to support income earning. I think that’s the connection that’s lost so often.
Thanks for the mention, I really appreciate it.
I agree, you must learn to live within your means but you shouldn’t stop there – you must also find ways to increase your means so you can improve your lifestyle. 🙂
I think that frugality is the foundation of becoming a millionaire. One should start being frugal if he wants to have that millions stay longer in his hands.
Fitz – well put. I’d recommend anyone reading this to check out Fitz’s post linked in the middle of the article. It’s well worth a read.
Millionaire Acts – That’s an interesting take. Frugality is a way of managing money, and if we can learn it before making money it can really enable us to turn what we have into even more.
I agree mate. We’re too focused on cutting costs, and there’s only so much you can cut before you start being miserable.
If you want to make money, it is pretty damn easy if you work hard and really want to succeed. Just got to go ahead and do it.
Just look at blogging. ANYBODY can make $1,000+/month by just starting a website and sticking to it for a year if they build relationships and track at a normal pace.
Good point Sam. We can take reasonable steps to be frugal–mostly by living at least a little below our means–but focusing on a side business or on improving our careers could be life transforming.
We need both, frugality and more income, but sometimes we put too much effort into one at the expense of the other.
One good thing about looking for new income opportunities is that it’s an “offensive strategy”, ie, something that moves us forward, and you never know where that will take you. Stepping outside our orbits can lead us to still more opportunities that we never anticipated.
Do you think that frugality is a goal all it?s own?
Boy, I really agree with you on frugality in and of itself is a waste! Rich Misers living in shacks is where that path leads!
Or do you think it?s an effort that should support other financial endeavors?
I think it could both in personal life and business. Look at Buffett, his business office looks like any other frugal business office.
Some great point! Balance is the key.
Money Reasons ? very good point on rich misers ? I?ve known a few, and I?ll be we all have. Money is after all a tool, and not something we should hold on high to be put above people.
You hit it on the note with the last subheading, “The best of both worlds: doing both”. Even if you’re raking in the dough, its still good practice to think about your choices before spending money on it.
And Sam’s right… you do start to feel miserable when you’ve cut out everything. But we all learn that through our journey to become debt free.
Some very good points have been made in the posts and in the comment section. I wrote a post titled “Putting the Budge Back into Your Budget” regarding becoming debt free and talked about the different ways to attack debt. The two main ways were to reduce the amount of money going out of the budget and to also make more money. I have the “let’s reduce the expenses”, personality in the family and my husband has the “I need to make more money”, personality.
In order for anyone to take their finances beyond just enough…or even comfortable, both parts of the equation will need to be implemented.
Money Funk – To Sam’s point, I tend to liken frugality to being on a diet–you can do it for a time, and until a certain goal is reached, but you can’t be on one forever.
We have to have fun in life, and while frugality enables us to live better on less, earning more income is what really drives us forward and enables us to have some of the goodies that make life worth living. Ultimately, money is a tool that we learn to spend sensibly and earn to the best of our abilities.
Hi. Good post and very informative. Do you have a link for the interview with the Millionaire? (or any information that might let me locate it?) I too love those stories, and have been collecting them for a few months as a motivational tool.
John, that article about the self made tech millionaire was published over 10 years ago–before all of the newspapers were adding all of their content to their websites. In fact, it was a local story at that, so it’s unlikely that it would have a link anywhere.
I’ll let you know if I do come accross anything; I’d like to have it myself! It was a great story, and the guy had some great philosophy to go with it.
I think the winner is one is frugal AND has the ability to earn more! 🙂
I agree, the advantage is being able to do both, but I think we often over emphasize being frugal as if that’s the ultimate solution. It can help in a lot of ways, but progress is determined more by increasing income over the long run.
I noticed this particular notion with a lot of finance blogs. they often talk about being frugal. Which is fine, but I think generating income is just as important.
It makes sense that frugality would be a prime subject in the blogosphere though. Those in finance are fully aware that it’s not about what you make, but rather, what you keep.
10K in a blue chip stock has been mathematically stated to grow into nearly a million in just 25 to 30 years. I’d say that’s matter of both frugality to keep your assets in tact, and the promise it offers of future cash flow.
I’m already a Ph.D in frugality myself (but I’m pretty bad at elaborating on it) So you advocate that more important point of finding ways to generate dosh.
I couldn’t agree more!
It is important though to practice frugality. Otherwise lifestyle creep will simply cause your spending to inflate to your theoretically ever expanding income, and you’ll get nowhere even faster! 😉
Wow Kevin – great minds think alike!
If I had read your post before making my latest, I wouldn’t have had to write it! I so totally agree with you on every level.
There’s a wealth of creativity and common sense in the PF world but I think we all have to get out of that mindset of eeking by and not GROWING. How do we grow as a person by not challenging ourselves to do more in a way that’s motivating?
I was also thinking that the original Mrs. Frugal Zealot – Amy Daczycyn herself was not able to get lots of cash and retire by pinching her pennies on her husband’s $30k/year salary. She built a great newsletter, got a book deal and that’s what made her well off. People see the one message of frugality, but don’t pay attention to the whole story.
SMRM – Your comment is pure brilliance–thanks for weighing in. I especially love “that mindset of eeking by and not GROWING”–that covers the whole discussion in just a few words.
Interesting take on Amy Daczycyn, though I’m not familiar with her. We always have to look at the reality of what’s happening more than at the words being written. She’s expanding her income while telling others to tighten their belts.The newsletter is the real story–the action–while frugality is mostly the subject. Moral of the story: frugality is a good thing, but writing a successful newsletter about it is the real payoff!
Most rich people were born rich, and they dont need to be brave at all, often their early entries into business are financed or at least subsidized by their fathers even if that just means daddy paying the rent whilst they develop skills. Without being subsidized by wealthy or at least VERY financially stable family you are HIGHLY unlikely to become rich. In fact your more much more likely to become rich through crime than through any kind of ‘bravery’ that the article falsely states as the essential character of the rich.
Benson – I think there’s merit to what you’ve written, however it’s not constructive to believe that the only people who can get rich are those who are rich already, if only by family ties. If we think that way, why ever bother to make an effort?
I don’t think getting rich should ever be the goal, because then it reduces life to a quest for money–then how much is enough? But some level of prosperity is worth pursuing, and that’s where we can’t box ourselves into thinking the deck is stacked against us because we weren’t born into money. It may be true at some level, but it isn’t absolute and certainly not worth accepting as though it’s our fate to be poor because our families are poor.
I have to agree that creating new income has been sorely neglected in the PF blogosphere -and needs to be focused on more. On the other hand I also think that frugality has it’s place. As you mention near the end, I think there is a middle ground where frugality and creating new income meet – why not do both and have the best of both worlds? Be frugal where you can, allowing you to save, invest and give more. Find new sources of income where you can, and create freedom and peace of mind. I love it!
Correct, we need to do both to be financially secure, but the point of the post is that frugality takes time that could be better spent increasing income. We need to balance the ability to save $2 against earning $10 in the same space of time. We should be able to balance both, but we don’t want to be consuming our time finding ways to save money as though that’s the preferred path forward.
I think of earning income as the primary function, and frugality as the secondary one, largely in support of the first.
I daresay that even making more income is limited.
I know we could potentially make a billion dollars a year, but realistically speaking most of us can’t break past a certain barrier and would be lucky to make even $100,000 a year consistently.
I like the article, but I think both activities: cutting back AND making more money are the keys to success.
FB – I agree, I think we need both, but I think that often times in the personal finance realm we give more weight to frugality, which has limits.
I also agree that most would be lucky to reach 100k consistently, but each of us could still make more than we do. It takes concentrated effort, of course.
“The mindset that serves frugality so well is often in direct contrast to the thinking required to make more money”
Your Twitter message said that, and it is true. It’s why you need to take stock of your current financial situation and decide what your end-point is.
For many, frugality (with the attendant rigorous saving discipline) may get you there. But, an hour or so with a simple online retirement calculator might shock you … in fact, I would stake money on it!
If, on the other hand, a simple save-and-work strategy won’t get you there – as Kevin anticipates may be the case for many – then you have to focus on income acceleration.
BUT, there is a tool that reconciles both points of view, and it’s one of the ‘secrets’ to how I became wealthy: delayed gratification. It’s kind of a “rich man’s frugality”. I say, spend money … but only when it makes little sense NOT to 😉
AJC – “Delayed Gratification” are the two ugliest words to a spendthrift! (But well worth repeating again and again.)
Frugality, unfortunately, can produce a circle-the-wagons approach to life. While you can find savings by staying inside the circle, if you want to find real money (and opportunity) you have to move outside that circle. With basic living expenses rising continually–despite official claims to the contrary–earning more income will be the only workable strategy.
BTW, I’m with you on the retirement calculations. If anyone puts legitimate numbers into a retirement calculator, including factoring in inflation, they’ll be shocked to see that most of what they’ve heard and read about retirement planning is pretty empty. Again, we’re back to the need to earn more income.
Great article Kevin. I started to count my time as money and it allows me to be frugal to a certain point. I like to take my time to make more money. There are times to be frugal, but you can improve your life by making more money.
Hi Grayson–Making more money is all about leveraging time, but frugality takes time so it competes with income efforts. We should try to do both, but earning more should be the dominant side.
I can’t agree more Kevin. I’m always looking to save a buck here and there but at the same time I’m always trying to maximize income at the same time. This is probably the very reason I started a website because I knew it would allow me to take advantage of any opportunities when they come up.
For example, the extra cash from my online ventures has allowed me to attend conferences, online training, and even hire a writer for my website. The difference I feel is that people with the poorer mindset are just spending money while those with richer mindsets are looking to invest their money to make more money.
Hi Chris–I always think, save money within reason. That means I’m not going to drive 5 miles to save 10c a gallon on gasoline, or 50 miles to save $50 on a new appliance. Once you factor in your time–and the money you could be earning in it–saving money at any price no longer makes sense.
(If you needed a writer for your site why didn’t you contact me???)
Hi Kevin, I’m always up for a guest writer if your interested but I’m not looking for any paid writers at this time. If you would like to contribute just let me know.
You have addressed something here that my wife and I realized about two years ago. We saw that if we wanted to move forward financially, we would have to increase our income because there was no more room to cut expenditures in our budget. That was one reason my wife decided to get out of teaching, pursue an MBA and become a CPA. Now two years later, we are starting to see the financial benefits of that decision. The budget is not as tight anymore and it feels good!
Hi Brian–Conratulations to you and your wife! I think one of the reasons people concentrate on frugality rather than on earning more income is that it’s lower risk, and your wife is an example. She had to a) leave her familiar career of teaching, b) get an MBA, and c) pass the most difficult professional exam in existence, the CPA exam. Talk about moving out of your comfort zone! Most people don’t want to do anything remotely that difficult so they sit home and cut expenses. But your wife has opened up an entirely new income opportunity that will benefit your family for the rest of your lives. Well done!
“But at some level at least, it seems like we may be doing a disservice by focusing so heavily on only one side of the personal finance ledger, while giving short shrift to the other major component: income.”
That answers the question at the bottom of the post. Saving money is great, but you can only cut back so much. Incresing income, especially residual income, could be limitless. I know a lot of people who wrack their brains to try to save $200 a month. But what they don’t focus on are ways in increase their income by several hundred or even several thousand dollars a month. It’s 2013!!! There are SO many ways out there to make month that don’t involve trading hours for dollars. You just have to be open to them and willing to think differently.
“Stress interferes with what ever we plan to do.”
This is very true. Here’s why: the part of our brain where we think and problem solve – the prefrontal cortex – becomes overflowed with dopamine when we are stressed out. This results in having a more difficult time thinking clearly.
The bottom line: the less stressed you are, the better you’ll be able to manage your financial situations. This explains why all experts agree that when you experience a sudden tragic event – such as the death of a family member – you should avoid making drastic financial transactions for several months. Until the stress of your current situation lessens, you won’t make rational decisions.