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You Can Make More Than You Can Save

There’s more to personal finance than frugality…

Spend less than you earn and invest the difference.

That’s the game, and there are three parts: spending less, earning more, and investing wisely.

The third pillar stands on it’s own, but the first two are just different approaches of doing the same thing: creating a surplus.

So which approach is better? Yesterday, I laid out the case for frugality, which you can read here:

Today, I’m making the case that building your income, not pinching pennies, is the most effective technique for building your wealth. Let’s talk about it.

Diminishing Returns vs. Exponential Gains

Let’s imagine for a second that you make $50,000 after taxes and spend $40,000. Great job, you have an annual surplus of $10,000. Hopefully you are investing it wisely.

Now, saving $10,000 a year is great, but you think that you can do better. How should you go about it?

Well, you could take my advice from last week and go for some big wins, like finding a housing situation that meets your basic needs but allows you to live well below your means.

You can also go after easy wins like switching to a cheaper phone provider.

Let’s say that changes like those you make over the first year saves you $5000.

Great. You went from spending $40,000 a year to $35,000 a year and increased your annual surplus from $10,000 to $15,000.

But where do you go from here? Do you think your efforts at frugality will yield more or less results the next year? Do you think you will ever be able to be so frugal that you get your spending to zero?

Here’s the bottom line: if you spend $40,000 a year the most you can add to your annual surplus through frugality alone is $40,000. Of course, it’s unlikely that you’ll be able to do that. It’s also likely that your efforts at saving money will yield poorer and poorer results over time as you pick all the low-hanging fruit.

On the other hand, as long as you keep your expenses constant, any time you increase your income you increase your annual surplus. Is it possible to increase your annual income by more than $40,000? It absolutely is. It may not necessarily by easy, but I bet you know lots of people who have gone from making $50,000 to making $90,000+ and very few who have gone from spending $40,000 to spending $0.

Take a look at this chart:

I created this chart in Google Sheets, but a hat tip goes to where I originally saw a chart like this.

On the left, we have the hypothetical results over five years of focusing solely on frugality, and on the right we have the results for focusing on income.

Am I saying that if you focus on income you’ll for sure double your income in 5 years? No, but you might.

The way I think that things are most likely to play out is that after a full year’s effort, you’ll probably see better results with frugality than with income generation.

But I also think that those will be the best results you ever get from penny pinching and the worst results you ever get from frugality.

Think about it like this, if you’ve been trying to reduce your expenses for the last five years, how hard is it to save an additional $1,000 dollars this year compared to last year? Brutally difficult. You’ve already exhausted all the easy options for saving a few bucks.

Now, imagine that you used to make $50,000, but worked hard for five years and got a $35,000 promotion to $85,000 a year. How hard is it to make an extra $1,000 next year? Comically easy. Assuming you get an annual 3% cost of living raise, it actually won’t take any effort at all. 3% of your $35,000 promotion is $1,050 a year.

Every dollar you successfully save makes the next one harder to save; every dollar you earn makes the next one easier to come by.

Frugality has diminishing returns. Income generation can experience exponential gains.

Strategies for Making More Money

Making more money wins in the long-term, but it’s important to remember that since you’re playing the long game, you won’t see results overnight.

The effort is usually front-loaded when it comes to making more. You’ll have to put in a lot of effort and likely experience a few failures to come out on top.

That said, here are two approaches that will work for those of us playing the long game.

Get a Promotion or a Better Job

If you’re already in the working world, figure out how to become a better employee.

Learn new skills, take on new responsibilities, take advantage of every continuing education or other growth opportunities in front of you.

Figure out what your boss wants and how you can help her look good.

Some ways of contributing that are always appreciated include:

  • Increasing revenue
  • Decreasing Costs
  • Eliminating office “headaches”

Chances are your efforts will go largely unappreciated. Be bold in calling attention to them and in asking for what you want.

You might run into several failures here, but it only takes one successful raise or promotion to make your effort worth it.

Starting a business or side hustle

So many of us grow up thinking that the way to make money is to get a job.

That’s a way to make money, but it’s not the only way and it’s far from being the best way.

If you’ve never taken the time to think through the fundamental principles of how money is made, I recommend this article:

The bottom line is that if your job is your only source of income, you’ve limited yourself to one customer, when there are many people out there who are likely willing to pay you.

It’s true that you don’t have enough time to work multiple full-time jobs, but there are plenty of people out there willing to pay for something besides your time.

Find something they are willing to pay for and sell it to them.

This could be as simple as retail arbitrage: buying something low and selling it high somewhere else.

Some examples:

  • Buying on eBay and selling on Amazon
  • Buying at garage sales and selling on eBay
  • Buying on Craig’s List (or picking stuff up on the “free” section) and selling on Facebook Marketplace

There are tons of places to source items, and tons of places to sell them. There are plenty of market inefficiencies that you can take advantage of.

Of course, there’s plenty of other things that you can sell as well:

  • Make art and sell it on etsy
  • Write ebooks and sell them on Amazon Kindle
  • Record music and sell it on Apple Music
  • Create online courses and sell them from your website

When it comes to making money, the possibilities are endless.

You could argue that everything that I’ve mentioned is hard to get into, hard to get big enough to make it worth your time and effort.


That’s why the longer you persevere, the less competition you will face as people drop out.

The work is front-loaded when it comes to income generation. It’s pretty tough to get your first thousand subscribers so that you can start monetizing your YouTube channel, but your next thousand will likely be easier.

The Final Verdict

So there you have it. Yesterday was the case for frugality, today the case for income generation.

Which wins?

This might be cheating, but I’m not declaring a winner.

My contention yesterday, which is a core thesis of my book on personal finance, is that the strategy that is best for most people is to start with frugality then switch gears to income generation.

Focus on the BIG wins and the EASY wins available to you in the land of frugality, then switch focus to building your income. The primary role of frugality at this point is making sure your expenses don’t skyrocket alongside your income.

Spend less, make more, invest the difference.

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