In the personal finance community there are TONS of personal finance blogs that focus on frugality. Don’t get me wrong I love frugality, but there are only so many ways to tell people to eat out less, cook at home, cut cable, shop around for car insurance, etc. I believe there is a place in everyone’s lives for some frugality, and it is especially important for those with incomes on the lower end of the spectrum.
There is a problem with ONLY preaching frugality (or 99% of the time), it is that you are forgetting the other side of the equation – income. You can only cut your expenses so far. Sure if you’re spending $100,000 a year, there is most likely some fat to trim and I’m sure it wouldn’t negatively impact your life (i.e. you’d still be just as happy). Now if you’re already spending $30,000, maybe you could cut that down to $25,000 but probably not much further without really having an impact on your life and potentially your happiness.
A benefit of frugality is that if you lower your expenses, it creates a bigger space between your income and your expenses which can allow you to pay down debt, save for financial independence, save for starting a business, etc. But like noted above, you can only cut expenses so far.
The other side of the equation, income, is often neglected. Let’s look at two scenarios and you can decide which one you think is better:
Scenario A: Couple earns $90,000 combined and cuts expenses from $50,000 to $40,000.
Scenario B: Couple earns $90,000 combined, spends $50,000 per year, and increases their income to $120,000.
I don’t know about you, but scenario B sounds a lot better than scenario A, and would get even better if scenario B ALSO cut expenses to $40,000. When you first start researching personal finance, I think the #1 thing you should do is spend the first three to six months (or however long it takes you) ONLY concentrating on your expenses. Trim the fat. See what you’re wasting money on that doesn’t make your life better or bring you happiness.
Once you complete that task, you’re going to have some free time. Use that time to research how someone in your field can increase their income. If it’s hard or you can’t (i.e. some teachers and government employees) then researching side hustles is a great plan. If you hate your job to begin with, research careers that pay more and you think you would enjoy more. You don’t need to get another expensive degree to change careers. I know people that have paid $10,000 for a few-month coding camp and once they completed the program they had $80,000+ job offers. In today’s market you don’t need credentials to get hired, you just need to show value and an expertise. Instead of sending around a standard resume, show someone a website you developed, an article you wrote, a project you completed, or a deep understanding of a company’s product, culture, and vision. These mean a lot more to a potential employer or client than the 3.7 GPA you had when you graduated college eight years ago.
Frugality is an amazing tool. It just should not be the end all, be all. Once you get your household expenses in order, take a look at your income. This will put your financial path on hyper-drive.
I like the combination. Decrease spending and increase income at the same time. A powerful 1-2 punch. If you just continue to cut, I think you might find yourself feeling a little deprived.
It always seems like balance is part of the answer to many questions!
Totally agree Ferv. The concept of Frugality can mean different things to different people and while I agree that focusing on income can be a good balance to focusing on expenses, the expense side is, generally, much more in the individual’s control. Most of us can work generally to maximize income, but we decide from moment to moment whether that $5 latte is worth it to us.
I agree that expenses are more in direct control of the person, but the person definitely has control over their income in most scenarios. It just might take a lot more time and effort.
Yes, this is definitely true. A combination of both is probably the best place to be, but frugality tends to be the easiest place to start for most people. In most cases, you have more control over your expenses than your income. But hey, whatever gets you to your goals fastest is what’s most important!
Once you get your expenses under control, you leave a lot more time to concentrate on the income side!
I totally agree with what you’re saying about frugality.
Here in the United Kingdom there’s a lot of debates in parliament about helping people to get by. These often talk about meeting the bare minimum requirements for surviving the economy.
It’s now reached the point that it’s no longer useful to tell people to be frugal. Whether governments like it or not, people are struggling and need to make changes in policy.
Ultimately, there’s a time to be frugal and a time to invest, and we’re big advocates of that.