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Earning More vs. Saving Money

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Last week, Ramit from penned nearly 4000 words on 5 surprising insights on earning more money. When I saw that it had A) surprising insights and B) earning more money, I rushed to read the article. In fact, I don't know anyone who isn't interested in those two things.

Before you can get to the 5 surprising insights on earning more money, there is a lengthy introduction. Included in that is over 900 words on why one would want to earn more rather than cutting back. If you read Ramit's site, that shouldn't surprise anyone. He's never been one to parade around about how frugal he is. While I appreciate the attitude of earning more, I'm often confused when it's pitted against saving money (hint: click that link for about 1,000 ways to save money). The two concepts are not at war... they are not mutually exclusive. You can do both.

Ramit makes some good points for earning more verses saving money. Here are the ones he points out...

  1. For instance, he correctly points out that saving money gets harder and harder. For example, once you cut something out (let's say your daily latte), you can't cut it out again. Ramit then points out that as you make more money it gets easier to earn more money. His example is a 10% tweak in pricing negotiations can lead to hundreds of dollars per month. His main point here is "There's a limit to how much you can cut back, but no limit to how much you can earn."

    My take here is that the later isn't necessary true. Some of the ways he suggests earning more include dog walking, organizing, utilizing your high school math skills (I'm going to assume tutoring on that one). Each of these do have limits on how much you can earn. Are you going to walk dogs 24 hours a day 7 days a week? Are you going to be able to convince someone to pay you much more than the going rate for someone who walks dogs? How much is your time worth at your chosen career? Is it better than what dog walkers typically make? If not, could it be better if you put more time into it?

    (Side Note: As a dog owner, I've spent a lot of time thinking about dog walking business. It seems to me that if you get a bunch of small dogs who don't pull too hard, you can do well. If you get a few dogs like my 70-pound Husky-Labrador mix, you are likely to have a long day.)

  2. The other point he makes is that "cutting back on everything [is not fun]". His language was a little more creative than what I like to use on this blog. His example was that to save an extra $1000 a month you'd have to go through and make major cuts including "No eating out, cancel gym, cancel cable, no going out, reduce cellphone minutes - etc." But to earn an extra $1000 you spend a little more time tweaking your business in minor ways to get 50 more leads and one good client that will give you $1,000/month. He suggests that tweaking will be 5 hours a week. I have no problems with that idea, but unless your businesses are high-earning, the couple of dog-walking clients aren't really going to add up to $1000/mo.

    The flip-side of the saving money argument is that it often doesn't take any more time to save money. I reach for generic aspirin instead of brand name and that's saved money in my pocket. Did one reach of my arm take any more time than another reach? I may have had to scan a couple of prices, but that takes mere seconds. I've written about cutting cable television in the past, but that's largely because I don't watch a lot of cable. I dislike paying for things that I don't use.

The biggest argument that I have against the earning more philosophy (and I've been a huge proponent of it since the start of this blog), is that it typically does take time. Dogs don't walk themselves. Garages don't organize themselves. Kids don't tutor themselves in math. At the end of the day, earning more in these ways require trading your time for money. That, in my opinion, isn't exactly earning more, but earning differently. It may not be much fun to save money, but coming home from work and walking a dog or organizing a garage, doesn't sound like my idea of fun either. If your grand plan is to quit your job and just do these side jobs, I fear that you won't be earning more for a little while.

I understand Ramit's perspective though. To some degree I live in that world. We both have blogs. We can spend a little time tweak our blogs and producing more earnings. He has a best-selling book. He can spend time promoting it and see earnings multiply. That's just leveraging the existing hours of work we've put forward in more efficient ways. However, even those avenues of growth are limited. If I make $40 a day from Google AdSense, I may be able to increase that, but chances are that I'm going to be limited by the amount of traffic I have. At some point, I need to reach bigger audiences or look into other forms of monetization.

In the end, I'm not 100% sure what the answer is. I think it lies in the 80/20 rule. If you can cut out the expensive things that have little impact on your life, you should do it. If you can build a business in your spare time without making it feel like you are working 100 hours a week, perhaps that's worth looking into as well. Where the two concepts collide is probably the sweet spot of having more money and having the time to enjoy it.

[Note: I realize I didn't even get to the 5 surprising insights... perhaps another day... for now I'll celebrate that I wrote around 1000 words, even if that leaves me 3000 shy of Ramit's article.]

[Note 2: Check out some tips from Reader's Digest on how to save money.]

Last updated on November 28, 2011.

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11 Responses to “Earning More vs. Saving Money”

  1. Depending on your goals, I think it’s important to concentrate on both. Specialize in something that you can be good in, to earn more, and save more by reducing spending in order to reap greater rewards, tomorrow. Because of tax structures, a dollar saved is worth more than a dollar earned, sometimes significantly so.

  2. Making more money can’t just be about trading time for money. Else you end up being self employed. Which in the end is no different than being employed by someone else.

    The real goal needs to be building a business where you are not the main cog. Use your expertise to setup a business that runs itself.

    Think about owning a McDonalds for example. The goal is to be the owner not the manager. If you are the manager your options are limited for expanded revenue. If you are the owner you can simply buy/invest in another one and hire another manager.

  3. In Australia we have a sliding tax rate, ie the more you earn the higher percentage of rate of tax you pay. Under 30,000 is 10% from 30 to 50 is 23% from 50 to 100 is 37% from 100 to 250 is 43% and every dollar after that is taxed at 47%!!!

    For me this taxation system is not designed around earning more, in fact it punishes you for earning more! If you had a flat tax rate than yes I can see the incentive to earn more.

    But if you earn 50,000 to have an extra 100 in income you need to earn 158, or you could just save 100.

    Obviously both have their place but if there’s a sliding tax rate than the getter emphasis should be on cost cutting

  4. I’m with you on the 80/20 pareto principle. There are tons of scammy “ways to make money online”, MLMs (which we’ve come to know and love) and other ventures that don’t pan out. And you can waste your life away trying to make a few extra bucks on the side to keep up with the Joneses. We know a lot of people that work side jobs, bartenders, servers at night, etc when they really don’t need to if they cut out the designer jeans and new car payments. But it’s their choice. To each his own I guess, but making a little extra while being reasonably frugal is the way for us.

  5. Money Obedience says:

    Earning more is not that easy for most people. But that is not the problem anyway. How many high-income earners do you know or have you heard of, who are in financial troubles? Living within your means is a basic attitude and not a matter of earning more or less.

  6. I don’t understand this fascination with low paying jobs like tutoring and dog walking. It’s been my experience that if you give yourself 110% to a decent career that your income can grow far more than by picking up menial labor work. Do that and live within the means of what you were making in your late 20’s or so and you’ll make out like gangbusters.

  7. Wow! I just wrote an article with an almost identical title that will be posted tomorrow, then after stumbling in financial planning found this article on my 3rd click. Small world I guess. I too got the inspiration from one of Ramit’s articles.

    You brought up some good point here that I didn’t mention.

  8. This topic has been a strong theme in my life. I have tried it both ways and I can tell you that for me, cutting back was waaaay easier than making more money when I earned a regular salary. I think it’s that way for most people who are employed by someone else.

    Now that I am self employed, it is easier to just make more money when I need it. When you do what you love, the extra hours don’t feeling like extra hours. It’s also easier to cut back now because I have more time to spend. Many people spend too much simply because they don’t have time to do it the cheap way.

    It seems like all or none for me. Cut back and make less (but more when I really need it) or make the same money every week but never have time to cut expenses and make it go as far as I need it to. My life is more flexible and much less stressful now that I don’t feel the constant pressure to make more money.

  9. Prepare to be surprised! (not really, actually). It’s clear that certain sites appeal to certain demographics and Ramit certainly understands his spendthrift twenty-somethings pretty well. From that perspective it makes perfect sense to educate them on easy solutions like automatization and cutting fees which is something that is seen as amazing and awesome insights to them but which is something that the more savvy crowd already did ages ago, when they were in the pf101 class. Earning money is also far more appealing to the spendier demographics than not spending it (<- surprising insight there).

    Another somewhat related thing, I've noticed (as it pertains to a paragraph in the linked post) is the tendency for "bloggers who launch products" to talk about how they recently increased earnings way above expectations. It usually goes like this:

    Jan=$1000, Feb=$1000, Mar=$1000, Apr=$20,000 … where the $20,000 just happens to coincide with the launch month of the product they have been working hard on for the past year. This then, is sold as if they through sheer genius just increased their regular income by a factor 20. Well, not surprisingly, I'd like to see if that holds for the next month too.

  10. I’m glad I just found this article. My wife and I have been looking at cutting cost and decided to cut out our daily latte. Instead we will make our own coffee, which in a months time we will save roughly $100. Your number 1 point above is a good one to remember, ‘once we cut something out, we can’t cut it out again’. For us we have to learn to stick to our budget and even though we are saving $100/month we aren’t making more money, just saving more money. Its a good point, that my wife and I need to work on ‘making more’ money all the while saving along side.

    You can’t cut and cut and cut and be happy, so that is where the budget comes in.

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