Should you be focusing on being more frugal or on earning more? It’s a question that’s often debated in personal finance circles.
Frugality can help you maintain your overall lifestyle by managing trade-offs in your budget. Perhaps you’ll cut back on eating out to afford a nicer vacation. And maybe next year you’ll switch things around in favor of eating out more often.
But frugality is also complementary to earning more because it can help you achieve future goals. It can help you raise your financial well-being.
The answer to the question: should I be more frugal or earn more? depends on your current situation. Being frugal and making more money both have their own place in personal finance.
So, should you be doing more of one or the other? This article makes a case for each and lets you decide.
The case for being frugal
When you’re going through tough financial times
When you’re stressed about money, you don’t need to make a case for frugality. You simply spend less because you have no choice. Surviving financial tough times takes priority. And the thing with frugality is that it has an immediate positive impact on your bank account.
In these situations, frugality can buy you some precious time and help you keep debt under control while you get back on your feet. But when frugality is imposed on you, it’s a bitter pill to swallow. Probably not the best way to be introduced to it.
Indeed, some people who’ve been forced to be frugal by necessity avoid frugal habits after things get better. They associate frugality with tough times. Which is a shame. As I will cover later on, frugality can be complementary to raising your financial well-being.
When you’re more financially stable
Frugality can help improve your financial well-being when you’re financially stable. You have more flexibility when the gap between your income and expenses is positive or close to being positive. If you’re able to stick with it, spending less can have a powerful impact on your finances.
Being frugal can help you grow your savings to invest more, build an emergency fund, or pay off debt. Frugality isn’t just a way to afford the things you want or to maintain your current financial situation. Think of it as a set of behaviors and habits that can help you stand on more solid financial ground.
If being thrifty and frugal is a habit you’d like to develop further, start by focusing on the low-hanging fruit first.
That is, start by crafting and enforcing a budget and planning your expenses carefully. When cutting back your expenses, pay special attention to your recurring expenses.
After going through the obvious cutbacks, frugality starts producing diminishing returns. For example, if you spend an hour clipping coupons to save $10 at the grocery store, but you can earn $20 an hour, is that time well-spent?
When assessing frugality, it’s important to keep in mind the dollar value of your time. If you find ways to increase your income from say, $20 to $30 an hour, you’ll likely want to review your frugal habits. You may find that you need to drop some of them.
That’s because as the value of your time increases, frugal habits you once considered worth your time won’t justify it anymore. The balance will tip, and you’ll likely want to spend more of your time looking for ways to further expand your income. Finding ways to save more will take a back seat.
There’s a cap to frugality, isn’t there?
There seems to be an unspoken consensus in some personal finance circles that frugality has a limit or a cap. That is, realistically, you can only cut back expenses so far, so surely, there’s a cap on frugality, right?
It depends on how you frame it.
Most will agree that there’s a minimum amount we need to spend to cover our rent / mortgage, groceries and other basic bills. If your income doesn’t grow or if you’re unable to create new income streams, then there’s definitely a cap on the value of frugality.
But if you’re able to expand your income, the frugal habits you keep will increase in value. The positive gap between your income and expenses will grow. And if you’re not spending more, the increased value of frugality will derive from the fact that it’s helping you avoid lifestyle creep as your income expands.
At some point, you’ll find a comfortable middle ground. As your income continues to grow, you’ll be able to adjust your frugality to improve your lifestyle in a financially responsible way.
The value of frugality is not static. If your financial situation improves and you earn more, frugality can help you further increase your financial well-being by helping you manage lifestyle creep.
The case for earning more
The case for earning more vs. being more frugal is stronger when you’re financially stable. As your income starts outpacing your expenses, it makes more sense to look for ways to earn more and improve your lifestyle.
When you don’t need to worry about covering your basic expenses, your mind clears up. And it gets easier to think about ways to earn more, like landing a side gig, starting a business, or investing in yourself.
The thing about making money is that it doesn’t come with an upper boundary. With some effort, girt and luck you can keep expanding your income indefinitely. As long as you’re healthy, there’s nothing limiting your ability to continue earning more. And you can start where you’re at in your life to increase your earnings.
Earning more is more difficult than spending less. Truly, it takes a different mindset. The good news is that you can always learn. In this TED talk, Casey Brown shows you how shaping the thinking of others can be an effective way to increase your income.
The case for being frugal and earning more
Frugality isn’t at odds with making more money. On the contrary, it’s complementary to it. For most of us, their synergy can help us reach our financial goals faster.
How do you achieve that? To make these concepts work together, think of frugality as an enabler. That is, think of it as an important component to achieving other goals, including earning more.
Here’s a few examples of how you can link frugality goals to income-generating goals:
- Being frugal to build a cash cushion for emergencies: Building your emergency savings can give you the confidence to pursue activities that earn you more.
- Applying frugal habits to save a given amount: Coming up with the funds you need to launch a new business or to invest.
- Being frugal to better align your income with your expenses and put your mind at ease: Having more peace of mind can open up your eyes to income-earning opportunities you’d overlooked before.
- Getting out of debt: Spending less to free up cash and live debt-free.
- Using frugality to manage lifestyle creep: That is, keeping your spending in check and maintaining your financial well-being once your income starts to grow.
Connecting frugality to specific goals can help your cash flow and drive you to improve your financial situation. It can get you the financial breathing room you need to increase your income.