The Money Toolbox: Short-Term Versus Long-Term Financial Solutions

A few weeks ago, I did a brief radio interview where the hosts of the program asked me whether I thought frugality and cutting expenses or investing and earning more money was more important. I thought for half a second — you have to really think on your feet with those kinds of interviews — and gave them my honest answer.

The truth is that people need both frugality and cutting expenses as well as investing and earning more money in their lives because those strategies address very different problems. There are life situations where frugality is going to be very helpful and investing isn’t going to help much at all, and there are going to be other situations where a long term investment strategy is going to be what you need and frugality serves a “helper” role.

I like to think of these different strategies in terms of the time frame over which they’re most effective.

Frugality and cutting expenses are brilliant short term strategies, albeit ones with a very nice “long tail” in some cases. If you choose not to spend $10 on something unnecessary, that $10 stays in your checking account immediately. If you choose to buy 10 store brand items at the store instead of your normal name-brand versions, and each one saves you $1, that $10 stays in your checking account immediately.

That money immediately impacts your ability to pay the rent, pay off debts, keep the utilities running and keep food on the table.

Now, what do I mean by a “long tail”? Some frugal strategies are either incredibly simple or don’t have any drawbacks or only require up-front effort, and those strategies often just become the new normal for you. For example, our family switched to buying almost entirely store brand basic food items and household supplies on a permanent basis because they do the job and save a lot of money. Another example: if I install a more energy-efficient light bulb, my energy bill goes down just a little bit this month and every other month for a long time, without any further effort. Yet another example: if I figure out a more efficient way of doing laundry that shaves a quarter off of each load without impacting me in any way, I’m going to be spending less on laundry forever. Those things help me now, but they also help me later, too.

On the other hand, investing and “earn more” strategies are almost entirely long-term strategies. Very few people can magically flip a switch and just immediately start earning more money — if those switches existed, everyone would flip them. You generally have to work hard to get a raise or to take the next step in your career path, and that takes time. To reboot your career, you often have to get more education, and that takes time. For investments to really start paying off, you have to be invested for a while, and that takes time.

Over the long run, career improvement strategies, investing strategies and side gig strategies can end up doing far better than frugality and money-saving strategies, but in order to get there, you have to put in a lot of work for little immediate return. Your raise or promotion is likely built on the back of months or years of hard, diligent work. Your new career path might take years of education. Your new job is built by years of education, quality work and professional relationship building. Your big investment returns are often built through years of good investment choices and continuous additional contributions.

Frugality and saving-money strategies will help you pay your rent and get rid of your debt, but they won’t make you wealthy. On the other hand, career and investment strategies won’t help you make the rent this month or pay down your debts right away, but they are the path to long term wealth.

Clear enough, right?

The thing is, different people have different needs at different points in their lives. When I was in college, I really needed every ounce of frugal living I could get my fingers on in order to keep my head above water. Later on, when Sarah and I were struggling to keep the bills paid, we really needed frugal strategies to keep the rent paid.

At the same time, I’ve invested many many hours with little or no immediate pay in order to earn promotions, get a good job, move to a better one, start and build side gigs and so on. Those efforts eventually paid off, but not for months or years.

I’ve been investing for early retirement for many years. That money hasn’t paid off at all other than some nice on-paper gains, and it won’t really pay off for many years until the day comes that I can walk away from the daily grind of work. It’s a very long-term strategy.

In the end, I look at frugality, investing and career-building as different tools in the same toolbox. That toolbox is labeled “A Better Life.” Sometimes, when I need to quickly solve a problem or when I want to shut off a slow leak, “frugality” is the tool I’ll grab. At other times, when I want to take another step toward building something big for the future, I might grab the “career development” tool or the “investment” tool. I’m not grabbing those tools for the same task, like how I’m not going to grab a hammer to tighten a bolt and I’m not going to grab a wrench to pound in a bunch of nails and I’m not going to grab a wood saw to dig a hole.

The approach you should be focused on depends on the problem you’re trying to solve. Are you struggling to pay your bills this month? Then you should be looking at frugality and cutting spending and selling off items and social services — things that offer an immediate return on your money. Are you wanting to buy a house in five years? You’re probably looking at a mix of tools — frugality to help you have enough money left at the end of the month so you can invest and save for a house purchase, and good career choices so that you have a good job when it’s time to buy a house.

Life throws a lot of different problems at you, and to solve those problems, you need to have a lot of tools in your toolbox. A well-equipped toolbox for life has a lot of different tools in it, and they’re useful in different situations. When someone says that you only need one tool to solve all of your financial problems, just imagine someone trying to dig a hole with a hammer.

Frugality and cutting your spending should always be in your toolbox, as should improving your career opportunities, saving for the future, and investing. They’re all useful tools, but they’re tools that address different problems, just like a hammer is used to address a different problem than a wood saw.

Good luck!

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Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

Reviewed by

  • Courtney Mihocik
    Courtney Mihocik
    Loans Editor

    Courtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to,, and elsewhere.