saving and spending (Photo credit: 401K)
Generally speaking, I’d say that the land of personal finance blogging is a land of harmony. There are few disagreements about the merits of various decisions, but not perfect agreement. For example, let’s say that I want to increase my savings; should I focus on cutting the frills from my budget or pursue new sources of income? Although most writers would agree that both are useful, bloggers tend to split into two groups: Frugalistas and Income Over-Acheivers (I needed a name so I made one up).
Frugalistas are the group of folks washing their hair with baking soda and reusing plastic bags. They shun my excessive use of un-rechargeable batteries and penchant for buying new pants when I get a seam rip. I won’t even go into my recycling of whip cream containers instead of reusing for food storage. You can watch them in action on their shows on TLC. The goal is to cut out all unnecessary spending and live life on nothing but soda and free potato chips acquired through a 4 month stash, totaling 70 coupons. It’s a lifestyle of unending spending cuts.
Income Over-Achievers are the bloggers always talking about something called passive income, which is billed as earning money for doing nothing, but in reality translates into working multiple jobs, that added together, equals one second job. They extol investing, rental property, blogging for money and entrepreneurship. These guys are retiring at 55, because their bodies aren’t going to handle one day of work beyond 56. It’s a lifestyle of unending income acquisition.
My dilemma is that I find sense in both points of view. I do have purchases that are excessive. I can’t deny that without them my budget is better off, but those purchases do make my day more enjoyable. On the other hand, who can argue against earning more money? I have plenty of talents. I could earn a little extra money, keep my frilly budget and actually increase saving at the same time.
I spent a little bit of time over-analyzing this financial decision and determined that, in the end, frugalistas have the stronger position. Here’s why you ought to consider cutting your budget instead of expanding your income.
Cutting Your Budget is Tax Free
You know the drill. The more you make, the more they take. By “they,” I mean the people writing all the laws and receiving free healthcare for life and working only about 25% of the year; government.
At the very least I’m looking at 14% for employment taxes, 8% for state income taxes and another 15% for federal income taxes. It doesn’t matter how awesome my revenue per hour looks, by the time I subtract expenses and give the government 1 of every 3 pennies earned in income, my hourly rate is going to be much smaller than the check I’m cashing.
On the other hand, it’s tax free to cut your budget. One dollar of budget savings is, at a minimal, one full dollar earned.
It Takes less Time
Most budget cutting takes little or no time at all. If I wanted to cut out the occasional cup of McDonald’s coffee, all I have to do is not buy one and I’ll save a few minutes in the drive-thru as well. I’ve seen extreme couponing so I know that pinching pennies can be a time drain, but earning money always takes time.
Let’s take blogging, of which, many bloggers would agree can pay well. How many hours went into the content, creating the site, networking and commenting on other blogs? It might pay well, but it still takes a great deal of time.
Most People Have a Spending Problem
If the house is on fire, do you find more fuel for it to burn or do you try and put it out? Many people do have income generation problems and who couldn’t use more money? However, most people have a problem with spending. Budget cutting addresses that specific problem, but income earning could delay the health decision of moderation.
I believe there are merits to both approaches, but if you had to pick just one, I’d say frugalistas have a greater argument and I speak from experience. Over a year ago, my family had to find a way to make due on one income instead of two. We aimed at cutting out budget and earning more income to weather the financial storm. While we’ve managed to earn far more money from side hustles than I ever dreamed, it’s the budget cuts that have really had the largest impact; in total savings and time spent.
Where do you fall? Are you more of a frugalista or income over-acheiver? Where do you draw the line with each?
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Photo: 401kcalculator.org
I think I am both. I love saving but I don’t use baking soda and I do re use plastic containers. have side income and I do couponing through coupon sherpa.
I’ve never used coupon sherpa, but I’ll have to try it out. I usually do coupon chief for coupon codes. Perhaps a review of coupon sites is in order?
John, love the dichotomy you’ve set up, nicely done. I think I tend more to the Frugalista camp. It’s an emotional thing. I simply feel better having cut my expenses by a dollar vs. having earned another dollar. One thing: If I, say, cut my electric bill by $3 per month by investing in CFCs, I keep getting that $3 (or more if power rates rise) for the life of those bulbs, without doing anything further. Automatic! If I earn an extra $100 one month through a side hustle, it’s generally a one-time bump. My time is required to earn $100 next month, and so on. Maybe that’s why I like cutting more than earning. The big argument for earning, in my mind, is the sky’s the limit! If one has an entrepreneurial bent, one’s life can be transformed. Expenses can be cut only so much–we have to eat and be protected from the elements.
I’m an entrepreneur at heart, so I’ll never stop trying to earn money from business ventures. However, I’ve noticed that cutting is far easier than earning.
Interesting thoughts. I am a bit of both, meaning I have created multiple streams of income (and some are passive, as in now they are set up I don’t need to do anything accept collect the income – e.g. royalties).
But I also like to find ways to cut back and do what I can to live on less because ultimately no matter how much you earn, if you spend more than you earn or even all of your income you will never save.
I’ll have to stop by your site and see what those income streams are…ebooks maybe? While you can start off with a lot of work to earn a stream of income, there is still that build up of work in the beginning and for most things that I’ve seen, it’s usually a lot of work. There isn’t much out there that is truly passive and work equals time.
I’m with you. Balance the approach.
I agree that balance is the key. If you are so frugal that you are washing plastic bags, you have a very unhealthy relationship with money, probably worse than the overspender who doesn’t care.
Good point. I think society needs to break out of the mantra that it’s always good to save a penny.
I completely agree that it’s easier to manage what you have than make money anew. Unfortunately most people think that there will always be opportunities to earn extra income, but experience tells me this just isn’t usually the case.
We try to find a balance. We save on what we don’t care about as much and spend on the things that matter. It seems to work quite well for us.
I think that’s really the trick. Focus on the things that matter.
I’m neither. I don’t want to work 24/7 on trying to bring in more, nor do I want to make my own laundry powder.
I do agree with you that trimming back is tax free – the more you make, the higher your tax bracket, and second streams of income get hit harder (which I’m currently dealing with!)
Thanks for stopping by!
I’m a little of both myself, but fall more into the income over-achieving group. My view is that I can only cut spending to a certain amount. With income, theoretically, my earnings potential is limitless.
When making money you do have to take into account taxes, but there are ways you can shelter your earnings so that Uncle Sam doesn’t take as much as he would if you didn’t take advantage of the tax breaks.
Yes, the limited cuts and unlimited earning potentials cannot be overlooked. But, likewise it needs to be noted that time is not unlimited and making more money will almost always cost more time.
I think I’m a little bit of both. I try not to go too extreme either way because it just doesn’t sound appealing. Sometimes you just have to find your balance and do what makes you happy. 🙂
I think the middle of the road is the best place to be. I find it’s hard to be extreme when you have a family, because everyone needs to be on the same financial page when you are talking about everyone in the home.
My husband and I are grad students so basically that means we are not making much money so we need to be frugal. However, that frugalness during undergrad allowed us to be able to buy a duplex when we moved to grad school. That brings in another $4000 after expenses. Being frugal gives you the freedom to invest and be a income overachiever.
I feel I have always been a frugalista. I wasn’t working full-time hours for almost a couple of years, so I had to be extra frugal during that time. I have been a side income earner for over 3.5 years doing a job that involves one of my passions.
I would eventually like to increase my full-time job’s income, so I guess I am also an income overachiever. But it’s only because I want to save more money for a house, travel, an emergency and retirement, not buy something I’ll regret just because I can afford it.