Here on Making Sense of Cents, we talk a lot about making more money and the positives that go along with that. However, just making more money doesn’t solve all of your financial problems.
To fix your financial situation, you may need a mixture of both saving more and earning more.
This is a big personal finance debate.
Some people believe that saving money alone doesn't work and that earning more is the only way. Others believe that saving money is better than earning more.
I believe that many people have room in their budget to cut a little more, but, yes, there is only so much that a person can realistically cut before they need to start earning more.
If you're not at that point, though, then continue reading so that you can learn more about the power of frugality and the many reasons to save money.
You need to understand personal finance.
Earning more money won't solve all of your financial problems.
If you only focus on earning more, you may never realize that you have a financial problem. This may hold you back for years because you didn't think it was worthwhile to take a moment to learn more about how your financial decisions impact you.
This can lead to lifestyle inflation, money being wasted, trying to keep up with the Joneses, and more.
By also focusing on saving money, you will be taking a great step towards understanding your financial situation and what needs to be changed. This can help you to stop wasting money!
Here are a few personal finance related things you may need to learn:
- The importance of an emergency fund.
- How to save money.
- The ins and outs of saving for retirement.
- How interest rates can impact you.
- The value of your credit score.
And much, much more!
Saving money doesn't mean that your life will suck.
“Wow, that person must lead a very boring life if they save that much money.”
“I can’t save money because that means I’ll just be eating Ramen and sitting on my couch all day long.”
There is a myth that only very sad and boring people save money. I’ve heard it over and over again.
As you can probably guess, I really dislike this myth. It’s just not true at all.
There is absolutely no reason to go broke by spending all of your money in order to have a good time. I believe that you can balance living a good life while saving money.
The power of frugality means that you can still live a great life while on a budget. Money doesn't have to dictate how much fun you have.
There are plenty of ways to live an awesome life while saving money. Yes, you can still see your friends, have fun with your loved ones, go on vacations, and more, all while staying on a realistic budget.
We spend less money than ever and travel full-time, so I know this is true!
Related article: How To Have Frugal Fun
You can see the benefits of saving money right away.
Earning more money is great, but it may take you some time in order to increase your income. Whereas with saving money, you may see the results from your saving actions right away.
If you want to start saving money right away, it can be as easy as a phone call or email.
This means that by making a simple phone call to your cable company (or some other company), you may be able to save money quickly, which can lead to less stress and more money in your pocket.
There's no reason to just waste money.
There is no reason to spend all of your money just because you are able to. It doesn’t make any sense to spend everything just because it’s there. In my opinion, finding ways to save money is always a great idea.
Even if you are only able to save a small amount, that is much better than not saving anything.
Time and compound interest are both on your side, and this can turn the small amount of money you have saved into a much larger amount.
The less money you spend, the less you need.
By spending less money, you'll decrease the amount of money you need in the future. This includes money for emergency funds, retirement, and more.
This will help you to build your emergency fund quicker and reach retirement sooner.
Just think about it: If you are already living a frugal lifestyle, then you will be used to living on less in the future. This means that your retirement savings doesn’t need to be as large, which means it may be easier to reach that savings goal.
Also, if you spend less money, you probably won’t need as much in your emergency fund, which can also help you fund that sooner!
According to the U.S. Bureau of Economic Analysis, the personal savings rate in the United States has averaged around 5% in the past year, and averaged 8.33% from 1959 until 2016.
Mr. Money Mustache has a great graphic in his blog post The Shockingly Simple Math Behind Early Retirement that shows you how your savings rate can dramatically impact when you'll retire. For example:
- With just a 5% savings rate as mentioned above, it would take you 66 working years until you reached retirement.
- A 25% savings rate would mean that it would take you 32 working years to retire.
- A 50% savings rate would mean that it would take you 17 working years to retire.
- A 75% savings rate would mean that it would take you 7 working years to retire.
So, by saving more of your money, you are likely to retire sooner. Sounds amazing, right?
There's no guarantee that you'll always have that income stream.
Yes, there are tons of jobs and your income potential is pretty much unlimited. However, you never know how long you'll be making money or how long that job will last.
You might be thinking, “But I enjoy my job!”
While it’s great that you enjoy your job, you should still be saving money. I have heard far too many people say that they love their job and don’t need to save money because they can just work forever and still be happy.
However, what happens when you can no longer work? You don’t know what the future will bring – you may encounter a medical problem, a serious life event, you may hate your job 20 years from now, and so on.
Nothing is guaranteed.
So, instead of spending every last penny that you have, you should find ways to save more money.
You can use your time for other things.
The last of the many great reasons to save money that I want to talk about today is that by finding ways to save money, you may be able to work less.
This may allow you to have more time for other things in life that you want.
Everyone wants more time, right?
Do you believe that saving more money is important as well? What other reasons to save money can you think of?
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I really like the way you outlined frugality here, also mentioning the myths that put a lot of people off being frugal.
Sadly I think a lot of people who ONLY believe they need to make more money to be successful, and don’t look at their spending habits (or don’t want to have to pay attention to their spending because they just want to be that rich that they don’t have to) are not just wanting to “keep up with the Joneses” but they ARE the Joneses, all the best frugality advice will go in one ear and out the other until they have that lightbulb moment.
It’s easy to spend money, but it takes a little bit of commitment to be frugal. Because you’re making a commitment to yourself and your finances when you adopt frugality it makes it so much more rewarding than carelessly spending. The feeling of achievement that comes with frugality is enough in itself to feel the effort is worth it and build life-long frugal habits.
Jasmin
Thank you Jasmin!
I always think managing your finances is a bit like losing weight: you can eat less or exercise more, but a combination of the two will give the best results.
Yes, great way to think about it!
nice article. sums up why this is such a loved website.
Thanks!
It’s pretty shocking that America’s personal savings rate is still only ~5%. I agree with everything you’ve said. I can personally attest to the power of a fully funded emergency fund. Having over six months of expenses in cash has made my recent job layoff a lot easier.
Right? 5% is just crazy.
Great post, and it means a lot coming from someone who is killing it on the income front! It’s huge that frugality can provide instant results and potentially allow you to work less. It allows me to be a SAHM while still achieving a 50% savings rate on our one income.
Thanks! Even though our income has grown, we are actually more frugal than ever. It’s interesting how that worked out! 🙂
Saving money buys us freedom and space. When I stopped shopping so compulsively, it freed up my time, my closets, and my mind. Clutter is consuming! I also think keeping our spending in check helps us with gratitude and appreciation. All of these are personal benefits; nevermind the huge environmental impact less consumerism has.
Yes, clutter IS consuming!
Frugality has always been important to us, but it does have its limits. Since we have cut our spending and budgets as far as we’re comfortable going, the best thing for us to focus on now is earning more. Both concepts have worked for us, but not always at the same time.
Yes, I definitely understand 🙂
It’s basic math.
You need to earn more and spend less.
The more you do of each, the wider the gap, and the more you can save/invest.
Of course that’s easy to say. Much harder to implement. 🙂
Yes, exactly!
We’ve lived on one income for the past 15 years, so being frugal has allowed us to pay off debt and start saving for retirement. I think many people think “If I only made more money…”, but that’s not always the answer, particularly if your spending is high.
Yes, exactly!
Try to have at least 4 months worth of wages saved up in case of a medical emergency in which you can not work and have to be on EI medical leave. I had to have emergency surgery on May 18th for a hernia on my small intestine, and while looking for what was wrong with me they found that I should also have both ovaries removed. Fast forward to now, I had two surgeries and have gone back to work 6 weeks early due to how little you get from EI. (i’m not supposed to go back til sept, 13th) I got paid min wage, and during the summer we usually do OT so I missed out on a lot of income. Currently I am about $1000 behind in bills (because of course we had a vehicle break down, and we only have a truck and a motorcycle to drive). I hope to get back on my feet soon, but it will be tough as hours will be cut back once the weather turns colder.
I’m so sorry Sabina. Sounds like you are having a tough time. Yes, having money saved is always a great thing!
I think the biggest thing was the surprise of having a health issue to start with ….when something like that happens out of the blue, its probably more hard to deal with then something that is planned, such as a pregnancyor even a planned surgery. I am thankful though for the EI we do have…its been nice being back to work.
I like money too much to spend it frivolously on things that don’t matter to me. That being said, I believe earning more and saving more should go hand in hand. Retiring early doesn’t have to be a dream and I’m definitely going to stay in the frugal lane until I get there. You summed up frugality great, Michelle:)
Thank you Latoya 🙂
I feel like I’ve made the mistake of focusing on frugality for too long. We live on less than $1500/ month and I can’t be too much more frugal. I’m now trying to focus on earning more. I am glad that we know how to live on so little, though. When our income has increased here and there, we’ve been able to save a ton of money. I think it’s good to have a balanced view. If you only think about earning more, it might not mean you’re in any better shape financially. You can always outspend what you earn.
Yes, having a balanced view is very important.
Frugality has opened so many doors for us. It allowed us to save aggressively and life off of one income! Before exploring side hustles, this was the first thing we did to reinvent our finances!
Awesome!
Your overall thinking of saving (and not only focusing on making more money) is great. Although getting promotions and raises are great, they’re not something you can directly influence right away. My wife and I have found a good balance between saving and still living. We find ourselves living frugally, but also spending where we find the most value.
Thank you! 🙂
Thank you for sharing! I definitely see the importance of saving money. I am always having a hard time throwing things away and always thinking on why I should have to spend more money on something if there is a way to save on it. It is so awesome to be able to have that cushion in case you may ever need it as well as having something to invest.
Thank you!
So true. While currently trying to generate extra income (including starting to look for a day job again), am also trying to be more frugal via better menu planning and coupon apps. Especially with a family (sports, college expenses, vacations, etc etc) a person really needs to be able to find the good deals.
We need to work on menu planning as well. We’ve been doing fairly bad with that lately.
I really like your point about nothing being guaranteed and that not saving isn’t an excuse because you “love your job”. We’ve seen two friends lose jobs that they thought were secure. They learned the importance of saving but both had to do it at lower paying jobs.
Thanks!
Totally agree with all your points Michelle. Keeping a budget to see where your finances are at is the first step and then slashing that budget is the fastest way to put money back in your pocket. I’ve seen awesome results by doing that which have helped me pay off debt faster as well as getting control over my finances (which brings with it a sense of calm). Once you have your budget slashed THEN you can focus on earning extra. But like I said, the biggest benefit in cutting your costs is it’s immediate money in your pocket. Shameless self plug but my CommentLuv link points to an article that may help your readers with that – I hope they find it helpful.
In my book one of the to-dos on the pre-hustle checklist was to evaluate your spending. Sometimes cutting $200 a month is easier than making an extra $200 a month.
Yes, definitely!
Hi Michelle! Love your posts! This one is great. My only problem with being frugal is my husband. Working on that. Thanks for all your great advice!
Welcome 🙂
I love Mr Money Mustache and actually met him at the Chautauqua in Ecuador this past October along with Go Curry Cracker and the Mad Fientist. It was AWESOME and I learned so much! Cool that you’re pursuing FI too. Sounds like you’re already there? Does affiliate income count as being retired? 🙂
So jealous! I would like to go to that one year 🙂
Yes, we’re at FI. Affiliate income is pretty passive so maybe? haha!
Practicing frugality is important (and super necessary!) because it makes you examine your spending triggers and allow you to pivot your mindset towards money. I just finished Melanie’s Dear Debt book and she talked a lot about the power of examining your spending triggers and embracing frugality on your terms.
Yesss!
Completely agree, there are no guarantees that our current income levels will continue. And saving definitely doesn’t mean your life will be uneventful. There are so many things you can do that are inexpensive or free! Thanks for the sharing!
Yes, for sure! Tons of great free things!
It’s nice to see a post like this because frugality is my main strategy. I have always worked the money that I did make in such a way that I stayed out of debt and kept my bills paid. I couldn’t afford credit card debt so I didn’t accumulate it. Making more is an option, but it may not be feasible for everyone.
Thank you!
My favorite part is how you talk about the possibility that someone’s income stream can change overnight. People show up in my office all the time, because something they never thought could happen, happened. No one thinks that rainy day will come, but at some point, it will. I can help them find shelter from the storm, but I’ll this to help them build their own shelter.
Thanks!
I love this because I’ve notice some people shaming frugality and saying that earning more is much better because of its potential. Earning more is great and maybe we can do both, but being a little frugal is often easier. Cut out cable, cook at home a few times…the savings will add up. Now it might not be worth it to be extremely frugal where you’re depriving yourself so much that you might go crazy and give up, I think there are great benefits of living a little more frugal. Frugal doesn’t mean cheap!
Yes! – “Frugal doesn’t mean cheap!”
This is an Excellent Article and full of wisdom…I say this from a personal standpoint and watching/observing others during a few decades as an adult – watching economic upheaval affect people and the effect on businesses, corporations, government thus impacting individuals. There is no guarantee you will have the same income stream (in fact reality is you won’t) and there is no control over economic outside factors. What we do have control over is how we spend our hard earned money and how we spend are hard working hours to create that money. Your article brings this to light! Great post!!!
In life you should always expect the unexpected and at any time. This should be one major reason why you need to save money for any unexpected issue. Your emergency fund can be used to cover unexpected car repair, home repairs, medical bills, or support on a sudden job loss. Many experts recommended that three to six months of your living cost should be saved into an accessible account as emergency fund.