If you have financial goals you want to accomplish or if becoming financially secure is a priority for you, you have one of two paths to get there: You could try to cut your spending so you can add more to your savings account or put more in your brokerage account. Or, you could keep your spending the same and focus on increasing your income instead.
While I don't spend an unreasonable amount of money, I have absolutely made the decision not to focus on spending cuts. Instead, I much prefer to increase my income when I feel like I need more money for my goals. Here are four reasons why my preference is to earn more rather than spend less.
1. There's no limit to how much extra I can earn
When it comes to earning money, there's no cap. I can work more hours to increase my earnings. Or I can try to find higher-paying work to make more money.
With so many opportunities out there as the economy has improved, most people -- myself included -- have the option to find a way to increase their income by starting a side hustle or doing overtime or looking for a higher-paying position.
By developing my skills and putting in some extra time at work, I've been able to triple my income in recent years. I would not have been able to slash my expenses that much. That's because when it comes to spending, there's only so low you can go. You need to eat, maintain a place to live, wear clothes, and have transportation to get around.
Rather than poring over your budget with a fine-tooth comb and spending time looking for all the ways you can cut your spending -- and likely your enjoyment of life -- taking the time to do extra work or learn an extra skill can have a far greater payoff.
2. Increasing my earnings will do more to build wealth over the long term
When you earn more, you can keep your spending the same but invest the extra cash you're bringing in. And if you earn a lot more, you can dramatically increase your investing. This can help you build real wealth.
Let's say, for example, you make $61,900 -- the mean annual wage -- and you're saving 6% of your income, which is about what the average person saves. This would leave you with $58,186 left over after making your investments (not accounting for any tax deductions if you were saving in a retirement account like an IRA).
Now let's say you slashed your spending dramatically and started saving 15% of your income. You'd be investing $9,285 a year instead of $3,714 and would probably have had to work really hard to find that extra $5,571 to invest.
Investing $9,285 a year for 10 years would leave you with a lot of extra money, though, compared with investing $3,714. Assuming a 10% average annual return, you'd have about $148,000 at the end of the decade after upping your investment amount, instead of about $60,000 if you'd continued to invest just 6% of your income.
But say you instead focus on increasing your income and manage to get your earnings up to $80,000. You could keep on spending the $58,186 you were spending when you invested at your 6% savings rate. But you could also save the extra $18,100 you've been able to earn, so you'd be investing $21,714 per year. At the end of the decade, you'd have around $346,000.
As you can see, you're going to make a much bigger impact by increasing your earnings than reducing spending.
3. Higher earnings help me enjoy life more
It can be really difficult, and not very fun, to cut spending. You'll have to live somewhere cheaper, drive a cheaper car, or cut out luxuries like dining out and entertainment. I don't want to do that, and most other people don't either -- which is why budgeting isn't usually viewed as an enjoyable activity.
If you earn more, though, you get to do more. You can keep the joy in your life -- and perhaps even spend more on things you love -- while still saving more, since there's simply more to go around.
4. It's easier to sustain a higher income than a slashed budget
Finally, once you increase your earnings, you can just keep working at that salary level. If you cut your spending, though, you have to keep up those cuts for years and years to make a meaningful impact.
Do you really want to spend a decade limiting how often you eat at your favorite restaurants, or does it sound better to you to work some extra hours or increase your job skills instead?
For all of these reasons, I much prefer to focus on increasing my income rather than cutting my spending. And I'd advise this approach for others as well. Start thinking today about what you might do to earn more, whether that's taking classes to learn new skills, finding a side gig, or talking to your boss about how to get on track for promotion. You might even consider looking into better-paying jobs in your industry. It will be well worth your effort.
