Building Wealth: Maximizing Income vs. Penny Pinching
I was reading through the “Ultimate Guide to Making Money” by Finance Blogger, Ramit Sethi, and came across a concept that changed how I thought about my finances entirely. It’s a simple concept, but up until that point, I’d never even thought of it before.
“There’s a limit to how much you can save, but there’s no limit to how much you can earn.”
The idea is that, you can spend hours of your life finding ways to save money, but there comes a time when you have to stop cutting costs, because after that point, you’re just diminishing your quality of life.
Believe me, Laura and I are excellent at cutting costs — we can find a bargain almost anywhere! For the first few years of our marriage, while I was in school and she was working, and vice versa — we found many ways to save money & cut costs:
- Eat out as little as possible
- Share meals
- Only order water at restaurants
- Shop at the cheapest grocery stores
- Use coupons
- Limit alcohol consumption
- Take public transit
- Rent movies on iTunes rather than go to the cinema
- Use our wardrobe thoroughly and only buy clothes when necessary, or when there’s a sale
- Make weekly meal plans
Don’t get me wrong, there is absolutely nothing wrong with the above strategies. While we were living in Vancouver, and I was going to school, we had no choice but to save as much money as possible! In fact, we are still bargain hunters: We meal plan every week, we’ll occasionally share meals at restaurants, and we avoid frivolous spending. But eventually we were penny pinching for the sake of penny pinching. All of our attention to our finances was focused around what we could trim down on. If we cut any more costs, we’d just be taking the fun out of everything.
Our attention was so focused around frugality, that we totally ignored how we could increase our cashflow.
The point is there comes a time when you have to stop penny pinching, otherwise you’ll sacrifice your happiness. You can only cut so many costs, but there’s no ceiling to how much you can earn.
Anybody can make an extra $1k
Whether you’re a student, self-employed, or working for somebody — there are always ways to increase your income, even by just a little bit.
If you’re a student, you can take on a part-time job, or even better: monetize a hobby. When I was in school, a friend, and fellow cohort, would crochet hats & toques on the bus to and from school and he’d make money on the side by selling them on his website.
Self-employed professionals have it easy; they’re in charge of their work, so there’s endless possibilities for increasing income:
- Holistic Practitioners can offer a specialized service and charge higher, or additional prices
- Food Truckers can research the hottest spots in town, and offer higher priced seasonal fare (i.e. Pumpkin Pulled Pork during October — that would be good, right?)
- Graphic Designers can take on higher paying projects by learning to code their web designs
- You get the idea…
People working for somebody else: if you negotiate a single salary raise, you can make thousands more per year, for the rest of your working life. I understand that, for some people, it’s simply impossible to negotiate a higher salary. The solution here is to build something on the side. Everybody’s good at something, and if you’re already spending time on a hobby, you might as well profit from it! Here are some examples:
- Do you knit, or crochet? You can sell your creations to friends, family, co-workers, or online.
- Do you speak more than one language? You can make side money as a freelance translator, or become a tutor, and charge people to learn with you via Skype.
- Are you handy? You can do odd-jobs for people needing vehicle maintenance, fixing their plumbing, building fences, etc.
Even just an extra $1k per month can significantly change your life.
Focus Your Attention on Income Growth
When your attention is focused on penny pinching, your mind is preoccupied, and you’ve left no energy for thinking of ways to increase your income. The mentality works both ways: when you successfully cut costs, you become eager to find more ways to cut costs; when you shift your focus to boosting income, and you start to see growth, you become inspired to boost your income even more. Income growth gives you a freedom that frugality can’t achieve.
It’s fundamentally important that you understand I’m not suggesting you live above your means; spending more than you earn is an equation that will never work in your favour. It’s entirely possible to switch your focus to finding methods to make more money while being mindful of your spending.
What’s Your Strategy?
Are you a frugal-freddy (is that even a term)? Are you excessive with your spending? Do you have saving strategies that work? Or have you found ways to incorporate both saving cash, and increasing income? I’d love to hear from you!