Updated on 04.28.11

When Is It Better to Be Frugal? When Is It Better to Earn More?

Trent Hamm

One thing I love to do is to browse through random personal finance blogs. I’ll jump on links from one blog to another, just to see what a new voice will have to say. Doing this helps me get a pretty good idea of the various perspectives and ideas that are out there. It also helps me notice a few “groupings” of ideas out there as well.

For example, I notice that, often, personal finance bloggers are either wholeheartedly about frugality or they’re all about entrepreneurship and earning more money. They’ll write only about their ideas and sometimes even take swipes at other perspectives (I often see entrepreneurship blogs making fun of frugality).

Frankly, I find this completely silly.

There are times when frugality is the best option. There are times when focusing on increasing earnings is the best option. Most of the time, there’s no reason not to try and do both.

For example, the effects of frugality are more immediate than the effects of building your income. When you make a choice to not buy something or to find a less expensive way of doing something, you start reaping the rewards from that choice immediately. That money goes from being spent to residing in your pocket right now. Thus, if you need immediate relief, frugality is the superior tactic.

On the other hand, frugality has a limit. There’s only so much you can cut before you start having to make seriously life-altering choices.

At the same time, the ability to earn more is limitless. There are always potential avenues to earn more money. You can get a second job, start a business, ask for a raise, and so on and so forth. Unlike frugality, there is no cap. You can always earn more. You can’t always cut more.

However, the value of your actions isn’t always clear when you’re trying to earn more money. Yes, it’s clear how much more you’re going to earn if you take a second job, but what about a decision to start a business? What about raising your skill set? It’s essentially impossible to interpret what those actions will earn for you. They might earn nothing. They might earn a lot. With frugality, you can almost always calculate how much you’ll save.

I tend to think that the biggest differences between frugality and increasing earnings come with your perspective and focus on life.

In my eyes, frugality shines best in the short term. If you’re in a financial panic after, say, a major car repair, frugality will help you. If you’re saving for a goal that’s a year or two down the road, frugality will make that goal possible.

Similarly, frugality is superior when you need precise numbers. For example, if you’re trying to figure out how to come up with a car payment, building your skill set for a better job is irrelevant. On the other hand, eating every meal at home can quickly provide the money you need for that car payment.

On the other hand, increasing earnings shines over the long term. Building your skill set doesn’t pay off today or tomorrow. Neither does networking, nor does starting your own business. These types of things need consistent effort and time to grow into earnings in your pocket, but the rewards they reap often greatly exceed those earned by frugality.

Increasing earnings is all about growth. Growth is often unpredictable, but the rewards of growth are tremendous, pushing you upwards to new heights.

What’s better? My take is that tactics from each side are useful in a successful life. Poor spending choices, for example, make it harder for you to make challenging decisions that can increase your earnings. It’s very hard to make an entrepreneurial leap, after all, if you’re not frugal.

The destination of financial independence is the same no matter which path you take.

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  1. Johanna says:

    I agree (hey look, everybody, I agree with Trent on something!) that there’s no one right answer for everyone, and saying that one is always better than the other is completely silly.

    To figure out which is the better approach for you, it could be helpful to compare your situation to something like the 50/30/20 budget. (50% of after-tax income for committed expenses, 30% for flexible expenses, 20% for savings.)

    Most “frugality tactics” – at least, the ones that are most immediately effective – have to do with flexible expenses – basically, your day-to-day spending on fun stuff. (For example, cook at home instead of going to restaurants, make your coffee at home instead of getting it from the coffee shop, get your books from the library instead of the bookstore.) If your flexible expenses are way more than 30% if your income, then frugality can easily help you get back on track.

    But if the problem lies in your committed expenses – if you’re spending way more than 50% if your income on things like housing, transportation, groceries, and insurance – frugality isn’t going to be as much of a help. Here, you need to either make some big life-altering choices to reduce your expenses (move to a cheaper place, get rid of a car, etc.) or earn more money.

    And of course, if both your flexible expenses and your committed expenses are in line, there’s no need to be more frugal or to earn more money, unless you want to. If it ain’t broke, don’t fix it.

  2. Well said. Frugality is a short term solution, earning more is a long term solution.

    So may people try to make more money quickly and the only thing they do quickly is bury themselves deeper in debt.

    Combing the frugality and entrepreneurship is where the magic happens!

  3. I am a frugal person, but I certainly agree that making more money definitely trumps being frugal over the long run.
    You can only cut your expenses so much… there is a limit.
    There is no limit on how much you can make as long as you are not trading hours for dollars with a limited skill set.
    As one earns more money, the cost of necessities becomes a significantly smaller portion of your overall budget. (ie: Milk is still $3/gallon regardless of how much you earn. The same is true for Gas, utilities etc.)
    Being frugal is important, but building skills (to help you earn more money) should always be a focus.

  4. Other Jonathan says:

    I can’t say it better than Tyler just did. My thoughts exactly.

    However, there is one more important aspect to frugality, which is that a dollar saved is MORE than a dollar earned when you consider taxes (and you must). If you’re getting taxed near 50% after considering federal and state taxes and medicare taxes, earning a dollar nets you fifty cents. Saving a dollar nets you a dollar.

  5. Tanya says:

    Starting a small business is hard work, and being frugal is a tool you can use so you have more money to put into your business. These two aspects of financial management can and should work well together while people are trying to achieve their financial goals.

  6. valleycat1 says:

    The earning more money tactic does have more potential, as long as you keep or develop frugal spending habits at the same time

  7. Sonja says:

    Lifestage can be a limiting factor also. The older you get the harder it is to earn more. I look at the elderly people in my family who have only the frugality option. They saved and really have a decent amount still in savings considering they are in their late 80’s. They have pensions and social security. But if they develop a chronic health condition and need a lot of care, it can wipe that out in no time.

  8. Jennifer Wear says:

    Great points, Trent. And I agree that both are important. Sometimes in our lives circumstances prevent us from earning more (like illness, family commitments) but we can always be more frugal. Then, when we can eventually start to earn more, if we are already frugal we benefit doubly!

  9. Jonathan Vaudreuil says:

    I’m glad you wrote this – I feel like the personal finance community is starting a little arms war over this topic, yet bloggers like yourself aren’t starting it.

    It makes sense that bloggers aren’t against either side. What PF writer would be against optimizing one’s finances, or against making more money?

    The problem seems to come when people get down to details. Ramit, for example, believes getting things 85-90% right is good enough, and in this case good enough is doing quite well. Trent, your focus is on much deeper frugality ideas, which is the direction some people want to go in.

    You can take from both, of course. As soon as the community is divided between making money and deep frugality tactics and gets angry about it, we have a problem. Thanks for stepping up to the plate on this issue, Trent!

  10. Becca says:

    There are costs associated with going to work, particularly if you have to pay for childcare, which night be $300 per week for two small children. Then there’s gas, and wear and tear on a vehicle if you have to commute far. Possibly the cost of a wardrobe. Most of these costs will not significantly offset earning except the childcare costs.
    Frugality tends to mesh with parenthood more than an outside job. Employers usually have rigid time requirements. In contrast, frugality generally has no schedule. Many frugal activities can be done with the child to entertain them, or can be done while the child is entertaining himself, or when he is napping.
    I agree if you don’t have this child variable, it is almost always better to earn more than save more. It is hard to fill a day with frugal activities that have more financial value than a paycheck.

  11. Adam P says:

    I agree a mixture of both frugality and earning more is necessary.

    My personal focus is on frugality for major fixed expenses (housing, automobiles) rather than cutting back on lattes and small purchases (while my savings rate is still exceptionally high). Trent’s and other PR gurus’s philosophy about some extreme frugality (making own detergent, making own toothpaste) just seems silly to me as a single person making 6 figures BUT for others it can and does work quite well.

    My thinking is in line with other gurus who say that if times are hard it is easy to cut back on the lattes and small frivilous stuff, but not so easy to skip the rent or car payment. So those are the ones you want to cut to the bone even in good times. (I drive an 11 year old car and rent a modest but modern condo right next door to work so I can walk in).

    Earning more can be difficult for a lot of people; I owe JD Roth a personal thanks for one of his posts on the job negotation phase being the best place to earn more money, as you can earn thousands of dollars for a few minutes work just be not taking low ball salary offers. I can’t work a second job due to my work contract as a professional all my hours belong to my company but that is also a great idea if you can find one.

  12. Debbie M says:

    I’m with Becca. When I have no dependents and all my friends are working long hours anyway, then I’m all for earning more. However, normally I’m a bigger fan of spending less. You can do extra jobs with your friends, but it’s easier to do frugality stuff with family and friends. For example, when I couldn’t afford my favorite college one year and had to live with my parents who had moved to another town since high school, I worked 25 hours a week in retail in addition to going to a (not-so-favorite) college full time). My parents were supporting me, so everything was already free! And I had nothing better to do, so I might as well work.

    But now that I have a social life and my job stresses me out, I prefer learning to make stuff (and doing craft nights with friends), sewing up holes in my socks while watching DVDs, and hanging out with clubs (such as the local ballroom dance club) instead of at clubs.

    Also, I’m not so sure that earning more trumps frugality over the long run, at least for me. I got those college degrees that I’m not using (except for fun) and I’ve done some side jobs and thrown the money at my mortgage, but having my own perfect recipes for some of my favorite things totally trumps hoping that my favorite restaurants stay in business and don’t change their recipes. Knowing how to sew buttons back on (or buy news ones if I lost one and replace all of them) totally trumps wandering stores, hoping to find something just as good. And when you do things for yourself, you can take the time to personalize it and do them just the way you want.

  13. Jonathan says:

    Like so many personal finance (and personal development in general) topics I think that personal priorities plays a major role in the frugality vs increased earning discussion. Frugality is a much better fit for my values and priorities than increased earning. In fact, I hope to reduce my earnings within the next decade, assuming I’ve managed to decrease my financial requirements to the level I hope.

    I think the most important message to take from this article is that there is no one size fits all solution. It seems that sometimes people forget this, and place too much focus on suggestions they disagree with (Trent’s homemade detergent, for example). I’m glad to see articles like this that remind us that if we don’t agree with all of Trent’s frugal suggestions we can simply make other choices (which may include increased income).

  14. Ginger says:

    Trent, I agree, personal finance bloggers (and the readers) need to work on both being frugal and earning more to do things like retire and to be able to spend on the important things. For me, travel, retirement, education and eating well are important. This means sacrifice other places and even within these things but I do mostly achieve my goals.

  15. Lesley says:

    I think Johanna really got it right with the 50/30/20 mix. When I first started reading financial blogs during 2009, they’d make me so depressed every time because they’d cite the 50/30/20 mix and frugality measures like cutting down on lattes or not buying dvds. If fixed expenses are already 70% or more of my income, if I’m already brown-bagging it, don’t buy any of that stuff, have never had cable, etc., that advice really doesn’t help at all. All you can really do is raise your income at that point. Frugality by itself will rarely do much to help.

  16. marisa says:

    I’ve been debating this in my head over the past few weeks. You really helped put it all into perspective. Thanks!


  17. AndreaS says:

    I get what Johanna is getting at with the 50/30/20 mix. However I disagree slightly in that she says frugality will not alter the 50% of committed expenses, in which she included food. Actually as compared to how the average American spends on food, frugality can save hundreds of dollar a month. As far as transportation, one can save by car-pooling, eliminating unnecessary trips, biking and so on. I agree that it is hard to change your house payment, unless maybe you want a roommate. Insurance is something where people might save a small amount by shopping around periodically. Her point is well taken, but one can save in some of the areas she listed.

  18. Pat S says:

    We all know the answer to that question intuitively, even if we don’t always define it in real terms. When you take frugality too far, you know. When you earn too little, you also know.

  19. Johanna says:

    @AndreaS: Obviously, my brief comment was not intended to be a full explanation of the 50/30/20 budget. The exact method for classifying various expenses has been discussed to death elsewhere, so I didn’t feel the need to go into it here. But if it makes you feel better, pretend I said “basic food” and “necessary transportation.”

  20. Nicole says:

    Okay, I’ll bite this time: was it necessary to basically take a swipe back? Perhaps it sets you/TSD apart in the mind, but did it add something to the article? Just curious.

    Also, I am not sure I agree that the sky is the limit where earning more money is concerned — there are still only 24 hours in the day, last time I checked.

  21. The bigger thing to recognize is that money and its equivalents are only one asset that is part of life. How you get the money, be it through frugality or acquiring more through earnings, is fruitless if it comes at the loss of other assets such as health, relationships, time and experiences. This will become clearer as you age and your assets of time and health and memories and relationships become more precious commodities than money.

  22. Des says:

    @Nicole – What do you contend the limit is, then, if income is not potentially limitless?

  23. A.J. says:

    While there is a theoretical upper bound on income, for all intents and purposes, that number is well above the amount of cash any one person can spend (think Mark Cuban).

    Obviously the practical upper bound isn’t quite that high, but it’s highly unlikely that you can look around and say ‘I will never be able to increase my income from where it is right now’.

  24. Henry says:

    Frugality and Income are just two sides to the same equation integrated over time.

    Money Earned = Money Stored + Money Spent

  25. NewReader says:

    I agree that pitting the concepts of frugality and earning more against each other is silly. These ideas can work together hand-in-hand. For example, in the past several months, I freed up some cash with several temporary, extreme frugality measures, and spent the cash on marketing and building skills for a new area of my business. My earnings are scheduled to increase next month thanks to the money I spent on my business, money I wouldn’t have had without some short-term draconian frugality on my part. Next month I can relax my lifestyle to my normal level of frugality that is sustainable for me over the long-term, and my income will be higher so I can save more. Win-win!

  26. Liz says:

    I spend what I have to for health care and hunt bargains for the rest of my needs. Just bought new glasses; lenses alone were $250 even with vision insurance. Must have the glasses, so am left with less for other things.

  27. Mary says:

    I’m surprised you buy storage bags at all and especially surprised you buy brand name!

  28. Frugality and earning more are 2 sides to the same coin: namely, building wealth. They both need to be practiced regularly.

    Frugality is more familiar to most, and can in some ways be easier.

    However, as Trent mentioned, earning more is a longer-term strategy, but one with huge potential. I found that out after I started my own consulting business. I now make several times what I used to make as an employee, have much more flexibility, and also have more earning potential. I talk about these issues on my blog (http://www.StartMyConsultingBusiness.com), as well as the nuts-and-bolts steps to starting a consulting business of your own.

    There’s also a myth floating around that you need a huge emergency fund before you start a business. However, if you start the right kind of business, are frugal with expenses, and know the right kinds of tools to leverage your time and automate things, starting your business can actually be very low risk.

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