Building Income Beats Frugality

There’s two ways to go about getting the life you want. You can either look at your current means and determine what the best life you can afford is, or you can figure out the life you want and increase your means until you can afford it.

 

Which one sounds better to you?

 

If you fall into the first group, your focus is going to be on frugality. If you fall into the second, your emphasis will be on building income.

 

Now, here are a couple disclaimers:

 

First, frugality and building income aren’t necessarily mutually exclusive; my argument in this post is that building income is a better and more worthwhile focus, not that frugality is useless.

 

Second, I’m not at all against being frugal. In fact, I think that my entire adult life has been marked by a certain sense of frugality, and to a certain extent, I’m proud of that.

 

My Frugal Follies

 

The problem is that in my 20’s I fell into what we’ll call the frugality trap. I was making some good decisions and saving and investing, but everything revolved carefully budgeting things out and determining exactly what we could afford.

 

We bought the cheapest house we could find because that’s what we could afford. We got lucky in the fact that we got a good deal and it’s nicer than the price tag would indicate, but the fact was that we bought the cheapest house possible because we needed to in order to make the budget work.

 

When it came to vacation, it started by looking at costs, then figuring out how much vacation we could afford. I’ve had a great time on every vacation my family has been on, but the planning process of every one of them started with the unsettling feeling that we were constrained by our budget.

 

That’s not to say that frugality never helped me. When our son was born and we decided to have my wife stay home, our frugality allowed us to continue on one income without her needing to go back to work.

 

The frugality wasn’t the problem, the mindset that completely focused on frugality at the expense of really pursuing extra income was what held me back.

 

The Limits of Frugality

 

The problem with a focus on frugality is that frugality can only take you so far.

 

Let’s say that last year you spent $30,000.

 

Chances are, there are some quick and easy ways to get some big wins in reducing that number. You could:

 

• Evaluate all your subscription services and downgrade or cancel ones you don’t care about
• Shop around on car insurance for a better rate
• Switch from a high priced cell phone network to a more affordable plan from Straight Talk, Cricket, or Metro PCS
• Call anyone you owe a monthly bill to and ask for a discount (on two different occasions I’ve got my internet company to give me a $10/month discount for 12 months by doing this. $120 for a five minute phone call isn’t bad)

 

All of those are fantastic things to do, and if you haven’t done them I would try them out –but the problem is that once those quick and easy ways to save money are used up, you are now faced with the much more daunting task of depriving yourself to keep your spending down. With enough discipline and willpower this is possible, but it’s no fun.

 

Frugality naturally starts to have diminishing returns.

 

Not only does the amount you are able to save keep going down, the amount of work required just keeps going up and up. Before you know it you are making your own soap and washing out ziplock bags to reuse them (I never quite got this far if that’s what you’re wondering, but I did think about it…)

 

Plus, the amount you can save is capped. Your spending can’t go below zero, and in most real-life scenarios you won’t even get within sniffing distance of zero.

 

A few paragraphs ago I asked you to imagine you spent $30,000 last year. How much do you think you could realistically reduce your spending this year?

 

I would say that you would be very lucky to get below $25,000. A person spending $30,000 a year can probably save anywhere from a few hundred to a few thousand dollars with the frugality tips listed above. Maybe with some discipline you can shave another thousand or so off of your discretionary spending.

 

Barring a major lifestyle change like moving from an apartment that was way out of your league to a more affordable one, you’re probably not going to do much better than saving a few thousand dollars this year.

 

And then where do you go next year?  All the low hanging fruit has already been picked. Frugality is a game of diminishing returns.

 

The Alternative

 

Instead of focusing on frugality, you can build your income. Income has no cap, no limit that you are constrained to.

 

Let’s go back to assuming that you spend $30,000 a year, but let’s now also assume that you make $30,000 a year. Basically you break even. No saving, but also no debt. You’re going nowhere financially. As we have already seen, in this situation the amount that you save can’t exceed $30,000 a year if you focus on cutting back your spending. But what about if you increase your income? It’s fully possible for you to make sixty, seventy, eighty thousand dollars or more a year. Now am I saying that it’s easy to add $30,000 to your income? Not at all, but it’s certainly easier than taking $30,000 away.

 

What is probably more important though is that gains in income can keep propelling you higher. If you put in some really good work at your job and get a 10-20% raise, every raise you get from now on will be higher.

 

If you start a business or side hustle, the business you earn can result in more business down the line from word of mouth and repeat customers.

 

Frugality has diminishing returns, income generation can have exponential gains.

 

Strategies to Grow Your Income

 

Growing your income is obviously easier said that done, but if you are willing to put in the work the returns can be more than worth it.

 

The truth is that the reason many of us default to frugality is because it’s easier in the beginning and the returns are more immediate. Building income works in the opposite way, it’s hard in the beginning and sometimes the returns take a long time to materialize. Sometimes you’re stuck wondering if all your hard work will even pay off.

 

That’s the leap you’re going to be willing to take, though. Some of this section will probably seem daunting, but you can do it.

 

So how exactly do you go about increasing your income? Well, you actually have a few different directions you can go.

 

Get a Raise or Promotion

 

The key here is to figure out what your manager really wants, and help them get it. How can you solve her problems, or help her achieve her goals? What can you do to make her look good?

 

Start figuring out exactly what the people who have the power to promote you want, and figure out how to deliver it to them.

 

Become indispensable.

 

Unfortunately, it might be too optimistic to hope that they will notice and throw money at you. You will probably need to initiate one or several potentially awkward and uncomfortable conversations about your title and salary. Be brave though, as bestselling author Tim Ferriss likes to say, your success in life can usually be predicted by the number of uncomfortable conversations you are willing to have.

 

This is a strategy that may or may not work in the short term, but becomes more and more likely to work the longer you keep it up.

 

If for some reason it doesn’t work out though, all your hard work has probably set you up nicely for the next strategy:

 

Get a Better (Paying) Job

 

There’s two big keys here and they are both slow, long-term investments in your future: networking and acquiring transferable skills.

 

Networking is one of those words most of us are probably sick of seeing, but it’s an important concept and it’s actually fairly simple: be nice to people and help them. Basically, all you are doing when you are networking is building good will with people.

 

In the short term, it’s difficult to see how this can ever pay off, until one of those people you’ve been nice to and helped is connected to a new opportunity that seems too good to be true.

 

The statistics say that most people get jobs because of who they know, not what they know, so get to know some people.

 

Like in the past strategy, you need to find a way to be helpful to them. The big recurring theme in the area of making more money is helping people.

 

Help more people = make more money.

 

(also: help people more = make more money)

 

You also want to pick up skills that other employers are looking for. If you don’t know what kind of skills your dream job requires, start doing a little research.

 

If you’re not quite sure what your dream job is, don’t be afraid in picking up a new skill, even if you don’t use it at your next job.

Start a Side Hustle

 

To me, this is the most attractive option. The reason is because the two options above involve trading your most valuable resource (time) for money. We want more money, that’s the point of this post, but I would prefer not to get locked into always needing to put in more time to get more money.

 

While there are ways to start a side hustle that still involve trading time for money (i.e. freelancing), you can also start a micro-business where you invest your time into the creation of something you can sell besides time.

 

I’ve already written about my favorite way to do this in another post, so be sure to read that for info on how to get started, but for now I’ll just point out that the key to making this work, like the other two strategies, is helping other people.

 

The great thing about the internet is that it gives you the unprecedented opportunity to help a lot of people at a very low cost.

 

How can you help people online?

 

An easier question might be, what do you look for online?

 

If you look mostly for entertainment, why don’t you create something entertaining for people like you? If you look for fitness tips, why don’t you start sharing your own? If you look for political commentary, why don’t you start voicing your opinion on politics?

 

If it’s something that you are looking for that means two things:

 

1. Chances are you have something to contribute, and
2. Most likely other people are looking for the same thing

 

One of the worst (and most common) excuses that I hear is “I have a great idea but it’s been done before.”

 

GOOD.

 

All that means is now you know for sure that your idea is profitable. That’s an unambiguously good thing.

 

Do you think somehow think that if you create a website where you talk about sports that a sports fan will see it and say “no thanks, ESPN already has the whole sports thing covered”?

 

No way! They’re a sports fan, if your content is good, they will read and share it.

 

Building a side hustle is a lot of work, but depending on how things work out, you could get to the point where you replace your day job.

My Experience Increasing My Income

 

Out of  the three strategies listed, I’ve pulled off the first and third ones twice each.

 

Coming out of college, I struggled to find a job and so I started my career making much less than I thought I was going to. Thanks to working hard to nab a couple of promotions and building up some money from my two side hustles, I’m making about two and a half times what I was when I first started working.

 

That’s not bad, but I think the really good news is that I still have lots of opportunity to grow.

 

My most recent side hustle is this site. That’s good news for you, because that means if I want this site to make money, I need to help you.

 

If the blog helps people, it will do great things for me. If it doesn’t, it won’t.

 

I have a vested interest in making sure I provide value to you.

Why I Want to Make More Money

 

I’ll come right out and admit it: I want to be rich.

 

I want to have abundant wealth.

 

The reason money matters to me is because money helps bring freedom. It removes many of the constraints I’m up against.

 

My wife and I had a conversation about having a third child the other day. We both agreed that things were a little too tight financially. That’s not how you want to make those decisions.

 

Either we don’t get what we want because of a lack of money, or we go for it anyway hoping that everything works out and that we don’t become crippled by anxiety over our finances.

 

The truth is that having money is an incredibly practical solution to a great many problems.

 

I’m not sure why you want money, but I highly recommend spending some time sitting down and figuring it out (if you have a spouse, make sure to include them).

Final Thoughts: A Sensible Balance Between Frugality and Income Building

 

If after careful consideration, you feel like you need more money, here’s my advice: grab the low hanging fruit that frugality offers and start focusing on building your income.

 

Only pay enough attention to frugality that you make sure your spending doesn’t spiral out of control.

 

I know increases in income are not easy to come by, but it will be a much better use of your willpower than fighting the urge to eat out again.