Today I want to answer the age-old question…Earn More or Spend Less: Which is most important?

Ok so this may not EXACTLY be an age-old question But it is definitely one that is highly debated within the personal finance space.

Well before I dive into the debate I will tell you that I recently updated the tag line for my blog to: Earn More, Spend Less, and Grow the Gap.

Does that give away my feelings on the question?

My feeling is, why not do both?

But there should be a certain order to how you approach the Earn More, Spend Less process.

Earn More or Spend Less

The argument for Earning More:

Earning more money was the primary strategy I used to work my way out of nearly 100K in student loan debt. I wholeheartedly believe that everyone has some skill, talent, or interest that can be monetized. And the additional cash, if used wisely, can be the secret weapon in our financial arsenal.

The obvious advantage to earning more is that the possibilities are endless. Even with the strongest commitment to frugality and use of a strict budget, you will eventually run out of things to cut. In today’s digital world, the barrier to entry for earning more money is very low. There are countless ways to earn additional cash online through blogging,  selling stuff, creating digital products, or setting up a profile on Uber.

Earning more money, specifically through multiples streams of income allows you to diversify risk and be less reliant on a single employer.

These days institutions are not loyal. You never know when a pink slip will land on your desk with no warning. Minimize risk by drawing income from multiple sources and lessening your dependence upon a single paycheck.

Do you ever feel shackled to your job or feel that your boss has the power of life and death in his or her hands?? Ok, hopefully, it’s not that serious! But if you have the feeling of being overly reliant on your job then earning more, specifically through multiple streams of income is one of the solutions.

Earning more also allows you to advance your financial goals such as aggressively paying off debt, saving for a downpayment on a home, saving more the kids for college, and/or retiring early.

And, if you need additional reassurances and reasons to earn more then remember that having multiple streams of income is one of the top habits of self-made millionaires!

Important Things to Remember When Earning More:

1. Don’t forget to keep an eye on your tax situation. The year after I began side hustling heavily we owed Uncle Sam a lot of money because we jumped a tax bracket and I hadn’t noticed!

Now, don’t be afraid of a higher tax bill. I will take Bill Gate’s take bill if I can earn Bill Gate’s money.  But consider consulting a tax professional to help you figure out your withholdings and prepare for the increase in income.

2. Earning more money can be addictive. Earning more money is great but in many cases, it involves trading time for money. Extra hours worked means time away from family and the other things that are important to you. Remember to give yourself a break and enjoy your free time when you can. There is a time to hustle and a time for rest and relaxation. As I continue on the journey to financial freedom I will be working on increasing my passive income (digital product creation, rental properties, index investing) so that I can minimize the number of hours that I am actively working away from home.

3. Don’t view it as “extra money”. Extra money has a casual connotation. There is no intentionality behind “extra money”. When earning additional income it is critical to name EVERY dollar, meaning every dollar should have a specific purpose. Money that isn’t specifically designated for a purpose, such as saving, investing, paying off debt for example, will most likely be spent on stuff that doesn’t matter. Ensure that you handle this money in a way that aligns with your SMART financial goals.

The Argument for Spending Less:

Although I fully embrace the concept of earning more, I do believe that it should be done within the context of learning to be a good steward over what you have first.  If you are a Bible reader then you may be familiar with Matthew 25:23 which says, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things”.

One of the most pervasive toxic money mindsets is I’ll get my money straight once I have more money”.

WRONG. If you can’t manage your money now, you will not be able to manage it later when you are earning more. In fact, earning more will only worsen your money situation (i.e. lifestyle creep) if bad habits are not addressed. What happened to that big raise you got last year? Did you decide you needed a new wardrobe or a better car to reflect your new earning level? If you have bad money attitudes, a windfall, a sudden influx of cash will solve nothing.

Tips for Spending Less:

1. Address Your Mindset. Personal finances is probably 80% behavior and mindset and 20% elementary school math. If you can add and subtract then you can succeed in your finances. You might be saying…really Nicole? If it’s so easy then why do I suck at money??

Well, first off you don’t suck at money. If you tell yourself that you do then you will suck. But we are going to move away from that type of negative thinking. Let’s say that you have made some bad decisions about money. And that is ok. We all have! But in order to take your financial journey to the next level, you must deep dive into your behaviors surrounding money and spending.  Many people underestimate the impact of your mindset which is shaped by your upbringing and experiences with money. 

2. Create a budget and stick to it. Creating a budget is easy. The hardest part of budgeting is the follow-through. It would be super simple to just set it and forget it…but a successful budget doesn’t work that way. Budgeting is an active process that requires you to be engaged. In addition to setting up the budget you have to be intentional about controlling and tracking your spending.

3. Embrace your inner frugal. There are tons of frugal living hacks that will help you shave hundreds or even thousands off of your budget.

Final Thoughts:

Earning more and spending less is the best of both worlds. So why not do both? Both are critical strategies for achieving financial freedom because they allow you to ‘grow the gap’.  As you become more financially savvy you begin to keep more of your hard-earned dollars while increasing your earnings  You begin to widen the gap between what you earn and what you spend. This is where the real magic happens because your money is now working for you. You can save, you can invest in yourself, in a business, or in the stock market. The sky is the limit. 

So what’s your opinion? Which is more important- earning more or spending less?