Updated on 05.14.09

The Advantages of Spending Less

Trent Hamm

The BucketWhenever I discuss frugal issues, someone usually brings up the argument that you’re better off focusing your energy on earning more money instead. While I certainly appreciate the value of earning more, I argue that spending a dollar less is significantly more valuable than earning a dollar more.

On what facts do I base this unabashed bias towards penny pinching? Two big advantages come right to the forefront.

First, the money you save from cutting spending isn’t taxed – more income is taxed. Taxes always benefit the frugal person. If you save $100 this year on household goods at the department store, your actual cash savings is $105 to $107 – you’re not paying sales taxes on those items. On the flip side, if you’re in the 33% tax bracket, you have to earn $150 in order to bring home that same $100. Every time you take a frugal step, your savings is after taxes – meanwhile, any increases in earnings that you accrue are still yet to be taxed.

A great example of this idea at work is our homemade laundry detergent recipe. I can make a batch of this in fifteen minutes – in other words, four batches an hour. Since each batch equals fifty two loads and each load has a savings of seventeen and three-quarter cents, you can save $36.92 in an hour’s worth of work. If you had used that $36.92 to buy laundry detergent, you would also have to pay 7% sales tax, costing you at total of $39.50.

But that’s just the start! Let’s say, hypothetically, that you’re in the 25% tax bracket. To make back that $39.50, you’d have to increase your income by $49.38. Let’s say you’re making $15 an hour – you’d have to work for three hours and twenty minutes to take home as much as you would from an hour of making homemade laundry detergent.

Second, savings tactics stand alone – you can’t increase your earnings in fifteen minutes. Frugal tactics are immediately effective when it comes to your bottom line. If you spend fifteen minutes making a grocery list and stick to it at the store, that time spent immediately results in more money in your pocket. Meanwhile, if you spend fifteen minutes of your time networking for your career, it earns no immediate dividends (unless you’re lucky enough to immediately make a sale of some sort). Instead, it just contributes a bit more to the stability and long-term potential of your career – not really a big help when you’re trying to make ends meet this month.

Let’s say you’ve got $100 in your checking account, for example, and you have a $90 electricity bill due. You also need laundry detergent to wash your clothes. What do you do? My suggestion would be to get the ingredients for that homemade detergent and spend fifteen minutes making your own detergent. Unless you happen to be a salesman on commission, no amount of networking is going to get your clothes clean.

So what advantage does earning more have over spending less? To put it simply, you can only cut so much spending – while you can always earn more. A career built with passion and focus is like a snowball rolling down the mountain – the income keeps building and building and building.

But it’s a slow build – and it’s one that has to work against the counter-forces of taxes and time, two things that many people simply don’t have in their favor when they’re trying to turn their financial ship around.

I’ll stick to using both tactics, thank you. I’ll work hard to keep that career snowball rolling down the mountain – but I’ll keep making my homemade laundry detergent until you pry the borax from my cold, dead hands.

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  1. Green Panda says:

    Great post Trent! I love the cost comparisons.

    Spending less also frees you time wise to use it for more important things like spending time with friends and family or pursuing a passion.

    Turning a passion into your side or regular job in turn can lead to more income(not always, though).

  2. Johanna says:

    Nitpick: Someone making $15 an hour is much more likely to be in the 15% tax bracket than the 25% tax bracket. For 2008, a single person taking the standard deduction and one personal exemption would have to work more than 53.2 hours a week, 52 weeks a year, to earn $41,501 ($32,551 + $5450 + $3500), the threshold for the 25% bracket.

  3. Joey says:

    I’m still trying to find a comment someone (her username had something to do with Emma Goldman) wrote in a thread on mefi; paraphrased, it went like this:

    A long time ago, I figured there were two ways to be happy: become rich, or become poor. I chose the second, which was much easier.

    Similarly, there are at least two ways to earn money: convince others to give you some, or reduce the amount you give to others.

  4. Todd @ The Personal Finance Playbook says:

    Another point I would make about the advantage of spending less is that it almost never makes your life worse. People waste so much money that it’s easy for most people to cut spending without feeling like they’re crazy frugal.

  5. Johanna says:

    Another nitpick: I know you love your homemade laundry detergent, but it’s really not the best example of a frugality tactic that’s *immediately* effective. That’s because there is an upfront investment involved: you have to buy a whole box each of washing soda and borax, and maybe also a big bucket. It takes time for that investment to pay off. Exactly how much time depends on how big your household is and how much laundry you do, but it could be as long as a year. That’s not trivial, especially if you’re engaging in other “spend before you can save” frugality tactics at the same time. Certainly, if you have an immediate need for cash, like in the situation you describe, making laundry detergent isn’t going to help you with that, unless you can sell it to your neighbors or something.

    As for the debate of spending less versus earning more, I think it’s stupid. You should do what works best for you.

  6. Joey says:

    Wow. Posting about it in this entry inspired me to go look for it again. I’ve been trying to track it down for about two years now, but I finally found it.

    Here’s the particular part I was paraphrasing, but the entire post is worth reading:

    “when i quit my career years ago, i said there were two paths to freedom: getting rich, or being poor. i chose the easier path, and over the years i’ve met hundreds who’ve done the same–working little jobs here and there to enable their lives of ease and/or art.”


    Her name was RedEmma, by the way. :O)

  7. Ms. Clear says:

    It’s not always possible to earn more, at least in this economy. Spending less is sometimes the more realistic option.

  8. Angie says:

    Here’s an interesting conundrum – maybe Trent and/or the readers can weigh in… my husband and I have an inexpensive family cell phone plan that allows us to call most of our family members for free since they’re in the same network. My husband was recently promoted at his job, and the new job requires him to use his cell phone a lot more. They aren’t reimbursing him for the cell phone usage, they just assume he (and the other employees) have one. It does make his job easier, but last month the bill was over $200 more than we usually pay. We upped the minutes, but what is the frugal choice in this situation? Cancel the cell phone and potentially annoy/anger is employer in this economy? Pay for more minutes, knowing we won’t be reimbursed? Any ideas?

  9. Joey says:

    Wow. Posting about it in this entry inspired me to go look for it again. I’ve been trying to track it down for about two years now, but I finally found it.

    Here’s the particular part I was paraphrasing, but the entire post is worth reading:

    “when i quit my career years ago, i said there were two paths to freedom: getting rich, or being poor. i chose the easier path, and over the years i’ve met hundreds who’ve done the same–working little jobs here and there to enable their lives of ease and/or art.”

    Her name was RedEmma, by the way. :O)

  10. Joey says:

    Angie, unless the promotion provides more than $200/mo extra (considerably more, in fact, due to the added responsibility and hours), I’d inform my boss of my difficulties and either ask for a company phone, a reimbursement, or my old position.

  11. Angie says:

    It was technically a promotion, but his old division was eliminated. So it was more of a lay-off/rehire.

    It’s not that we CAN’T afford it… the new plan is only $20 extra… I guess I’m just miffed that they expect him to use his phone without reimbursement.

  12. Angie – you can at least use it as a tax deduction. Better than nothing.

  13. Chris @ BuildMyBudget says:

    A great post. Few realize that for every dollar you save you pocket 100 pennies, instead of the 75 to 90 pennies you get for every additional dollar earned. And you can’t place a value on time..I would much rather have the time to do the things I love.

  14. mike says:

    I like to look at the money I save as a return on an investment.

    I can regularly save 20% at the grocery store using coupons and sales. Where else can you get a return like that.

  15. Des says:

    @Angie – If you can afford it I would say just let it go. My work expects me to have high speed internet from home, which costs us $60 more than I would otherwise spend. I just remind myself that my new position pays more my old one, then I don’t feel so bad.

    Think of it like needing to purchase decent clothing to go to work. It is expected in most jobs, but not reimbursed.

  16. cv says:

    Johanna, have you considered the additional taxes from Social Security, Medicare, state and local taxes? For many people the amount withheld from their paycheck is considerably more than just the base tax rate. I tend to estimate my take-home pay as about 2/3 of my gross, even though I’m nowhere near the 33% tax bracket, since I live in a place with high state and local taxes.

    A couple of years ago I moved to a new city in a new state but kept my job with the same company, and it was like getting a raise because the local taxes were lower.

  17. Johanna says:

    @cv: That’s a good point. But usually, “in the 25% tax bracket” refers to the federal marginal rate, so that’s what I was basing my numbers on.

  18. Steve says:

    You have to strike a balance. You can’t solely focus on the income and totally ignore the outgo, even if you are a doctor or sports star. If you focus on the top 5 [to pull a number out of the air] the most effective frugality tactics and the top 5 most effective income boosting tactics, you will probably end up with more money in your pocket than if you focused on the top 10 income boosting tactics.

    Also, it’s not like you can network 16 hours a day. Cooking your own food or making your own laundry detergent can be a physical, mentally non-demanding activity, which can be a nice counterpoint to more cerebral activities during other parts of your day.

    And finally, a frugal tactic has a high probability of a payoff. An income boosting tactic may or may not pay off.

  19. Tricia says:

    But tell me why my detergent did not GEL??

  20. Adrienne says:


    Do you have a recipe for HE washers? I think you’ve said “just use less”, but I don’t think that will work. I know using less regular detergent in an HE machine can cause problems and will void the warranty. HE soap is low-sudsing, and though I wouldn’t put it past detergent manufacturers, I don’t think that means just watered down regular detergent.

  21. Celia says:

    Johanna said:

    “Nitpick: Someone making $15 an hour is much more likely to be in the 15% tax bracket than the 25% tax bracket.”

    I guess I am the exception: I have a part-time job which pays $15/hour, and occasionally I do teaching and freelance work, so I get taxed as a self-employed person. I only made $15,000 last year, and I still paid $600 in Federal tax.

  22. MM says:

    *waits for someone else to point out Celia’s 4% tax bracket*

  23. Anna says:


    Do you ever not complain and nitpick at Trent? I have not read a post of his yet where you haven’t been Ms.Negative to whatever his post was.

  24. Abbie says:

    I use the home maid soap in my HE machine and it works better than the HE detergant I use to buy ;) It is low suddsing and has caused no issues. I use 1/2cup per load. Also wanted to say that I spent a total of six dollars to get me started on making it, so I have saved immediatly.

  25. Jenni says:

    Thank you for the laundry soap idea! I just made my first batch and am excited to see what it looks like in 24 hours. Honestly, the appeal for me is not so much “saving money” but in avoiding having to purchase and then dispose of plastic bottle after plastic bottle. All the waste I have to show for this effort is a tiny piece of cardboard.

  26. Beth says:

    Three cheers, Trent – great post!

    I think that many people forget the impact taxes have on their financial lives. It is simpler, safer, and wiser to always, always spend less than you earn than to try to earn more. Additionally, it makes you and your family more self-reliant.

    This post brings to mind the comparison between weight loss and financial health. The best way to lose weight includes both cutting calories and increasing physical activity. Similarly, the best way to financial health is to spend less and endeavor to earn more.

  27. Good points, Trent, and well made. But to nitpick just a little bit, someone “in the 33% tax bracket” doesn’t have all their income taxed at 33%. This is a common misconception about how income tax works. The percentages are marginal or graduated, as explained recently over at My Open Wallet. (I won’t link here as links put comments into moderation status that has lasted the better part of a week for me in the past.)

    So it’s not exactly accurate to say you’d have to earn $150 to get the same gain as saving $100 if you’re in that tax bracket. On the other hand, there are all sorts of other taxes to contend with, such as sales tax, as you point out. Most of us have state income tax, and local taxes to dole out as well. So overall, I completely agree that within reason it’s better to save where I can than earn more.

  28. tightwadfan says:

    Actually Kate, if you are already in the 33% tax bracket, any additional income *will* be taxed at 33%, because every dollar over the margin threshold (which is every additional dollar you make since you are already over the threshold), is taxed at 33%. So if you are already in the 33% bracket, you *will* have to make $150 in order to match a savings of $100.

  29. tightwadfan says:

    Good post, I think this is one of the most important lessons of frugality. I like to have my evenings and weekends free so I prefer to spend less rather than earn more. If you like to work and would rather earn more than cut spending I think that’s fine too as long as your loved ones are okay with it. The problem is when people hate their jobs but feel that they need the money too much. If they could learn to be happy with a lower level of consumption they could spend less time at jobs they dislike.

  30. Excellent post!

    While all your points are valid, the “arguement” is won on the tax issue! I love doing anything that ncreases my standard of living without being taxed or charged a premium price.

  31. Nancy says:

    Angie, I think in this economy you have to use the cell phone for work and not complain about it even though it does cost an extra $20.00 per month. Maybe you can figure out some place else to save the $20.00 like buying more things at the grocery story when they are on special or combining your errands more so you’re not driving as much or finding free enertainment to replace entertainment that you’re spending money on. Maybe later down the road this will help your husband get a promotion faster. Just remember that there are many people out there who would love to have the job your husband has and employers know this. Best of luck.

  32. I agree – very hard to give up the cell phone. But negotiating with you carrier can save a few dollars here and there. It’s kind of like talking with the cable company. There is always some wiggle room.

  33. Mike says:

    @ Anna, #23
    lol, I was thinking the same thing when I read her comments to this article.

  34. PF says:

    @Abbie (#24), thanks for the feedback on the HE washer. I used to make homemade soap when I had a top loading washer and I remember that it didn’t suds nearly as much, so it seems like it would be better. Good to know someone who has had success.

  35. I’m a fan of doing both, but spending less has the immediate reward of more money in you pocket, while earning more is not as immediate. If you really try, you can slash your spending rather quickly.

  36. Katy says:

    Good food for thought! (No nit-picking here. I’d rather spend my time on other things. HA!)

  37. Doug says:

    I am surprised how many people would prefer to work harder than smarter. Even if I were to work to make more money it only makes sense to be frugal with what I make. I have made recommendations to people on how to save (just yesterday as a matter of fact,) just to have is shot down as it is coming out of my mouth. I give another recommendation for their reason my first idea will not work to be meet with more roadblocks. Some people do not want their money and only want to give it away. Such a shame, many can not afford to have such an attitude.

  38. @ Anna (comment #23)
    Johanna frequently has the most intelligent and insightful comments on this blog. She doesn’t always agree with Trent (although there have been times when she has), but she is unfailingly polite & realizes that a disagreement in opinion doesn’t mean you have to be disrespectful.

    Johanna, I love your comments and always want to read your responses. I hadn’t even thought of the up-front costs for his detergent supplies!

  39. thedebtside says:


    About the cell phone bill being $200 more than you usually pay. If it’s going to be that much more EVERY month he should look into getting a different plan. The company I use has a family plan when for $189 you get unlimited minutes for 2 people. I would think other companies would have similar options.


    I like the idea of this post. Although I doubt I’ll make my own detergent, I appreciate the fact that saving a dollar can be more valuable than earning an extra dollar. I continue to try to do both…

  40. Sharon says:

    You also need to factor in when you earn more income and pay more Social Security and Medicare, you’ll be getting more down the road.

    I’m not going to run any numbers here, but that is a factor.

  41. You get used to your lower spending and realize that you can live without a lot of things longer-term. This pays benefits for your whole life.

  42. heather says:

    the other problem with “earning more” is that you can always just wind up spending the extra you earn, without realizing it. if you think about trimming expenses, staying within a budget, etc. this won’t happen…

  43. @Angie You could switch your plan to an unlimited account that has no overages – that way there would be no surprises. Cricket Wireless is one option that may work for you. There are monthly plans that have unlimited calls, text, and mobile – so you get what you need and the price is the same month after month.

  44. This is a great article! I like how you have provided valid explanations for each argument especially the first one on how saving a dollar is more valuable than earning one. Another problem with earning more aside from it being taxed is that people often become more lavish in their expenditures. They tend to spend more because they have more disposable income in their hands. Saving is the best strategy to ensure a comfortable life in the end.

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