When it comes to advice on how to become financially independent, there are two schools of thought:
- Increase your salary as much as possible.
- Decrease your spending as much as possible.
There are personal finance gurus who scoff at the idea of cutting out lattes and other minor unnecessary expenses as a path to wealth and security. They instead advise you to spend your time making as much money as possible. Then there are others who extoll the virtues of thrifty living and frugality in the extreme. They champion a spartan lifestyle in which you can retire early by spending minimally.
So who’s right? Which method will lead most quickly to financial independence? Which to a life in which you no longer have to worry about money? And which tactic for peak prosperity should you pursue?
You are capable of doing both
There’s nothing about being thrifty that takes away from your ability to make more money, and vice versa. It’s not like packing a lunch instead of ordering out is somehow getting in the way of asking for a raise. No one has ever said “Well, I would love to be frugal by not buying new shoes today. But gosh dang it I just CAN’T because I also have to apply to a higher-paying job!” The two are entirely unrelated. They have little impact on each other.
Sure, you can argue that cooking at home instead of dining out and applying for higher paying jobs instead of toiling away for a low salary both take time. Likewise running a side hustle and riding a bike instead of driving both take time. But they are not mutually exclusive. And when you tailor your life to prioritize both forms of financial savvy, you are achieving a level of god-like efficiency that would make MacGuyver weep.
The income to spending Pac-Man mouth
Look at it like this: the lifetime path of your spending and income should form an imaginary wedge.
The top line of the wedge represents your income and the bottom line represents your spending. Where the two lines of the wedge meet is the point at which your income matches your spending exactly. This is bad: while you’re not in a deficit, you’re also not saving anything.
The angle of the wedge gets wider as you increase your salary and decrease your spending. The empty space in the middle therefore represents all the glorious moolah you’re saving by both earning more and being frugal.
(You will notice a distinct qualitative difference between my graphics and Kitty’s. Whatever. I don’t need her fancy artist skillz to make a visual point! It took me twenty minutes to make that thing in MS Paint and I’m damn proud of it. Judge me. I dare you.)
In other words, why wouldn’t you want to open the mouth of your savings Pac-Man as wide as you can to chomp up as much money as possible?
The benefits of both
The more you increase your salary, the more money you have. Yet it’s amazing how quickly things like frivolous spending, lifestyle inflation, and racking up debt can eat away at that increased income. Meanwhile, the less money you spend, the farther your income can be stretched. This is why you should focus on widening the earning-to-savings wedge, rather than allowing its bottom axis to rise along with the top axis.
You don’t have to spend money just because you have it. Even if you’re earning six figures a year, it behooves you not to waste it on things you don’t really want or need, things that don’t fit into your overall financial goal. Whether it’s to retire early, pay off your debt, or buy a home.
So think real hard about why you’re earning a big fat salary, why you’re trying to make as much money as possible. Is it so you can buy a $50k SUV and drive it a mile to the store to buy Mountain Dew once a day? (I’m guessing not, but hey, everyone has a dumb hobby and this one happens to belong to my father-in-law.) Or is it so you have more money to spend on the shit you actually care deeply about?
When do you have to choose to increase your salary or decrease your spending?
Riddle me this: when is your time worth more than your money?
Earlier in this article, I lied when I said frugality and high earning had no bearing on each other. Sometimes they actually do. Sometimes you’re going to have to choose between earning more money and doing something frugal on a case by case basis. We’ve already established that being frugal and earning money both take time. So time will be the deciding factor in this prisoner’s dilemma.
I recently had to choose between buying groceries to cook a homemade meal and cranking out some freelance work. My husband had a late meeting across town, and I had taken on a big freelance project outside of my day job. We were out of food in the house, but we are both human mammals who require sustenance to not die, so we needed dinner. Cooking at home costs significantly less than ordering decent take-out, but it would take me at least an hour to buy groceries and cook a meal. Meanwhile, I was getting paid $65 an hour for the freelance project.
I had to calculate which option, thriftiness or earning, would most positively impact my savings in that moment. The variables:
- Groceries to cook at home: $10
- Pizza delivery: $20
- An hour of my time: $65
If I’d chosen to buy groceries instead of work on the freelance project, I would’ve saved $10 but lost out on the chance to earn $65 in the same amount of time. But if I worked on the freelance project and ordered pizza, I’d still net $45. Not an ideal scenario by any means, and definitely an indication that I need to manage my time better. But the choice was clear.
Most of the time, you should shoot for both. But in the event that you have a Sophie’s Choice related to your time management, it’s best to calculate the highest return on your invested time. For while there’s no cap on how much money you can earn and save, your time is a sadly finite resource.