One Cent At A Time

A Personal finance blog for saving money and earning more and thus having a better life

Saving Money or Earning Money Where to Put your Priority?

23 Comments

Many times this question arises in our mind that which is good, saving more money or, earning more money? First of all, this is not a competition between the two. In-fact to reach financial independence, you need to practice both efficiently.

The problem comes when you are choosing one over the other (or, giving priority on one over the other) due to limited time at hand. Let’s see what are the main time-taking tasks involve in a typical saving money venture.

  1. Creating budget
  2. Tracking every penny
  3. Analyzing spending pattern to figure out cost saving opportunity
  4. Family education and encouragement
  5. Having a lot of manual labor to cut cost

Its true there are certain money-saving activities that can be performed without spending much time, for example, buying a generic store brand instead of name brands does not take any extra time, but saves some money. Still, th overall money-saving exercise is in-deed time taking.

Now let’s see what are the various tasks involved in earning more money which take time to accomplish.

  1. Gather skills, take training, educate yourself
  2. Involve in side income venture
  3. Take a second job
  4. Working perhaps longer hours at work for a raise/over-time.
Clearly it’s often a  raise against time. Whether to put your maximum money at saving money activities or earning money activities. Saving can help us in future but, getting a raise or earning extra money can help us now.
The opinion varies from person to person. We are not all equal, our priorities and choices are different. Naturally what works for me may not work for you. To me, in my situation I would incline towards earning more money as I think I reached a plateau of saving money. I can’t save anything extra without sacrificing quality of our lifestyle. I don’t want to do that. Hence I am more inclined towards earning extra money right now.

But, your situation could be different. Let’s consider a few points before deciding which way to go in specific situation when it comes to choosing between earning more money vs Saving more money.

  • You can earn more always as per your potential. As everyone knows that money can not be earned if you do not have potential to earn more money.
  • If you do not have potential to earn more money then saving is good option available to you. Because saving can help you in future.
  • Also if you are not earning good and you need lot of money in short time span then your previous saving can help you in overcoming your financial problem.
Let’s take a look at the equation
Saving = Income – Expenses
and Wealth = Saving + income from saving
To be richer, you’ll need to earn more and more, and, need to invest in vehicles with higher return. In the equation above, expenses can go down only up to a finite limit, whereas, there is no such upper limit for income.
Still, if you are earning enough money and still trying hard to make ends meet or piling up on credit card debt, you first need to concentrate on saving money. 
Earning more is harder job than saving more, no doubt! People with limited skills find it difficult to earn more money. Many of us even struggle to maintain steady income stream. Still, if you can earn $10 you can always make it to $11 with sincere effort. Similarly if you earn $100,000 a year, you can earn $110,000 by salary negotiation , by starting a side business or, by switching to a better paying job.

If you’re in my situation, earning more can be better option, in fact it can be the best option. Because more earning brings more money. And you can re invest your extra money in various investment options like stocks, bonds, real estate etc.

Some techniques for earning more money really doesn’t take much time and effort. Negotiating salary with your boss to get a raise is one of them. Asking for over-time is another example.

I would try to state my philosophy here (may not be suitable for your situation). I try to save 50% of my income, if you can do that you are meeting saving threshold. I am not saying that as your income go up, so should be your expenses to maintain 50% saving, you can certainly save more. Saving 50% with $50,000 income is not same as saving 50% with $100,000 a year.

I try to achieve this saving target with minimum effort. I set up automatic investments from my checking accounts. With no effort I invest money every month after each pay check. thus I can spend time on blogging, a money earning venture for me. I use automated tool like Yodlee Money center to track my expenses in least time possible.

Since I save money automatically before spending them, I don’t need to create budget to keep spending in check. Every time I get a  raise or a bonus, I increase automatic saving.

Spend Less Vs. Earn More

No doubt, both are complementary to each other. But, due to lack of time we can mostly go seriously in to one of them. Off-course there are some money-earning activities and some money-saving activities that can be done together, in parallel. But the most important tasks are time-consuming. One has to get priority over the other.

If you have just started with your financial journey, you can follow these guidelines I once established for us.

  • Step 1 – Analyze your spending habit and track every penny
  • Step 2 – Set up saving goals to achieve.
  • Step 3 – Track and check spending to meet saving goal, if you are weak (honestly for lack of better word) cancel all credit cards to keep spending in check.
  • Step 4– Start saving time by automating your saving.
  • Step 5 – Research and create a plan to increase earning.
  • Step 6 – Work relentlessly for up-skilling yourself to increase potential for earning more.

Depending on which stage of maturity you are in you may start from any of the steps above. I would like to stress on one thing.  As a human being who work to earn a living, we should not leave any opportunity to earn extra money (even when you are in saving-money steps)

Some of us may work on both together, getting over-time at work and tracking pennies can go together for them. Or working as a dog walker and creating budget can go together. As i said numerous times before, you are the ultimate judge of your situation. Analyze and take judicious decision, this post was just a guide to help you think.

Earning proportionate your ability and human beings are capable of achieving way more than we could ever imagine. If situation demand, we do wonders. I am sure you have done quiet a few wonders already. So, have faith in yourself and your earning power. Work towards the goal of earning more money and your financial life would be in order. But, do not ignore saving money part either.

Readers, what do you think, can the tasks of earning more and saving more be performed together. What would be your preference  when you have to choose one over the other due to lack of time and resources. 

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Comments

  1. I think that they can be done together, but you have to manage your time efectively. Last year I sorta included the start up costs for Odd Cents in my budget. I had to lower my savings by a little bit each month, but it was definitely worth it.

    Reply

  3. Hopefully you have worked hard in college, earned good grades, and chosen a field that pays well. If not, you will have to either find ways to live within your means, increase your income, or do both.

    Reply

  5. One without the other isn’t maximizing either. Basically the way I see it, you need to both increase earnings while saving a good portion of that added income, or else it really makes no difference other than to increase the cost of living “status”. I don’t want to get long-winded here and take over another person’s blog, so I’ll simply leave the link to my thoughts

    http://www.dollarversity.com/saving-vs-earning-more-their-roles-in-wealth-building/

    Reply

  6. You really have to do both. Saving is very important but you have to earn it to save it. You can’t safe what you don’t have. Tracking every penny helps but making it first and then knowing where to spend is the key.

    Reply

  8. It’s interesting to keep in mind: An extra $1 earned is ‘worth’ only, say, 80 cents because of taxes, whereas an extra $1 saved is worth $1. In that sense, you get a bigger bang for a buck saved than a buck earned.

    Reply

    • I would definitely disagree with that analysis. For starters, that $1 was already in your pocket or account so you are in no better nor any worse shape if you saved it. However, that extra earned money, regardless of what it is worth after taxes, is an improvement upon your situation relative to where you were before you received it.

      Reply

        • If you ask me, more is always more. The same is always the same. So how can earning more not be better than staying the same? You would rather have the exact same amount of money after 2 hours than having more of it? Granted, the amount would play an important role, but I would much rather spend 2 hours earning more than spending 2 hours keeping the status quo.

          Reply

          • I’m not speaking of the qualitative effects of earning more money instead of saving it. You could spend 4 hours and do both. But your total wouldn’t add up to $200 of additional wealth. You could take 2 hours and make a widget that generates a $100 profit or you could make a widget you’d buy for a $100. If you had to pay taxes on the profit for the widget you sold, you’d net an amount of somewhere around, let’s say, $75. If you made a $100 widget and used it for yourself, no taxes are due. The individual would have to determine which activity is more enjoyable, admirable, or whatever.

  10. Go for both. If you’ve recently tried to get your spending under control, I think it’s worthwhile to have a discussion with your supervisor regarding what you need to do to get promoted or to receive a raise during the next review process at your job. That way, you can attack the expense and the income side simultaneously. Of course, you can work extra hours or start a side business, but they’ll likely require a greater time commitment than getting a pay increase in your current job.

    Reply

  11. We try to do both. We also save half of our income, so I think we’re doing okay in that respect. We’ve set ourselves up with rental income, so we certainly seek to earn more money. However, I also value free time, family life and rest and relaxation. We only live one life, so I want to enjoy it to the fullest… and not be so focused on saving that we never enjoy our money, or not be so focused on earning money that we never take time off to make memories with the family.

    Balance is key

    Reply

  12. Make your money work for you. That is how to build wealth. If your goal is the earliest retirement possible, save every penny you can + earn as much you can + invest it wisely for the earliest retirement possible.

    Reply

  13. I agree with your assessment. You can only save so much before you begin to sacrifice your lifestyle. In other words, there is a ceiling or limit to how much you can save, while there is no ceiling or limit to how much you make. I focus on making an effort on the larger purchases/monthly expenses and keeping them in line. After that, I focus in increasing my income.

    Reply

  14. Given the limited time and resources, I would rather give priority to earning more money than saving more money. My philosophy is how can you save more if you are earning less, or worst, no earnings at all? So, I’d rather spend time making wealth then after gathering more wealth, I will save more money. By the way, in line with my philosophy is, You earn more, you spend less, you will be wealthy.:)

    Reply

  15. I’m just starting out with my financial journey. I have read that the habit of savings is one of the qualities of successful people. Unfortunately, this is the area where I am struggling.

    At the moment, I work overtime to increase my income for debt payments and eventually work on increasing my savings. I’m currently thinking of getting a credit card for my business.

    Reply

    • I suggest, please pay your debts as soon as possible and don’t escape in every due date to avoid charges. It is so stressful if you work hard because of paying debts.

      Please do not make as your habit to be a debtor. In long run your life is miserable if you can not control to pay your debts.

      Just live simply and begin to initiate how to develops your skills more in order to make and earn more money.

      Reply

  16. I think it’s a good practice to save something regardless of your income. Both are important, saving and earning more. And earning more doesn’t necessarily mean working more hours. Improve on your skills, train yourself to be more professional, invest in studying…then either ask for a raise or promotion or look for a higher paying job.

    Reply

  17. Todays philosophy of “Buy it now, pay it later”, has caused much of the turmoil in the world. In your 6 steps, I know you were trying to be nice in step 3 but anyone with debt, that is truly trying to get out of debt should cut up their credit cards. Once all debt is paid off, there is no need for a credit card because one will have more money, and learn to pay cash! I have not had a credit card in 5 years and I love paying cash(debit card) for every purchase. If I have a major purchase, I save to make the purchase. If an unexpected emergency arises where I need to buy something, I have a liquid emergency fund (equal to 6 months of expenses, currently). To bad the Government can’t understand the concept!

    Reply

    • I won’t say your method is better or my method is. Paying with debit card works for you the same way paying with credit card works for me. We shouldn’t change the ways that works and do not put us under financial strain.

      Reply

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