Spend Less Than You Earn Or Earn More Than You Spend?

by Silicon Valley Blogger on 2008-04-1424

The secret to money success is this straightforward phrase uttered time and again throughout the financial community: spend less than you earn. Doing so is the foundation for getting out of debt, living within your means and potentially heading towards millionaire status someday, especially when you throw in the awesome power of compounding into the mix.

There are a myriad number of ways to spend less than we earn and we’ve all taken different routes to reach that same end. But there’s a flip-side to that statement, which I actually find more in tune with my own personal finance philosophy, also shared by quite a few financial bloggers: the concept of earning more than you spend.

Some time ago, the personal finance blogosphere carried on an interesting discussion of what it is to be a frugalist vs a capitalist. And many of us in the online financial community declared that our financial orientations were a blend of these philosophies. What exactly does being a frugalist vs being a capitalist mean?

spend less than you earn

From Get Rich Slick, who originated this discussion, we get this basic visual that describes the difference between the two thoughts:

A frugalist is someone who’ll utilize his time to check the internet, scour the newspapers and ask questions for the purpose of tracking down the next great sale or bargain.

A capitalist, on the other hand, will use his time to check various resources that will lead him to the next amazing money generating opportunity.

As others have pointed out, the difference may be how one decides to spend their time dealing with their money: do you focus your efforts on saving a dollar or do you spend your time figuring out how to make more money?

What’s interesting here is that both frugalism and capitalism play into the same premise; it’s just stated slightly differently:

The frugalist’s mantra is “spend less than you earn”.
The capitalist’s motto is “earn more than you spend”.

Think about it carefully and you’ll realize that though they sound alike, they really don’t mean the exact same thing. This also brings to mind a few criticisms I have about these viewpoints. It almost sounds like:

Being a frugalist suggests that you’re working within the limitations of what you have. While being a capitalist implies that you’re out to consume. Or perhaps to sacrifice your precious time for the pursuit of more money.

And this is probably why I prefer the blended philosophy the best, since ultimately, these beliefs fall within a spectrum and somewhere there is a happy medium; I particularly like the concept of being what you may call a “frugal capitalist”, whom you can consider as espousing the positives of both financial philosophies. I do consider myself straddling both views, though I do tend to favor and embrace the “capitalist” approach more closely, since I prefer the idea of expanding one’s financial capacities over the idea of working within the confines of one’s financial limits.

Either way, you’re headed towards the same end — that of meeting with financial success — if you apply focus and determination to your endeavors.

Copyright © 2008 The Digerati Life. All Rights Reserved.

{ 16 comments… read them below or add one }

Lazy Man and Money April 14, 2008 at 8:40 am

I think there’s a balance to be struck. There’s a limit to how much anyone can save by being frugal. You can probably save 80% of that amount with 20% of the work.

On the other hand, it’s not extraordinarily difficult to make more money, especially if you are going to focus on a few hundred dollars a month doing some odd jobs or finding hobbies that pay a bit of cash.

Jeremy April 14, 2008 at 9:38 am

I find myself as a blend, although I lean more towards the capitalistic earn more than you spend group. Clearly, I use common sense when it comes to saving money where possible, but I don’t go out of my way to save a few dollars. You won’t see me making my own clothes, laundry detergent, or obsessing about trying to save 25 cents by haggling with someone at the grocery store about an ugly piece of fruit.

So above and beyond the basic ways to save money, I try to focus more time on earning more money. I think this quote is an important one:

“Being a frugalist suggests that you’re working within the limitations of what you have. While being a capitalist implies that you’re out to consume. Or perhaps to sacrifice your precious time for the pursuit of more money.”

First, I think people can get stuck in a rut if too much emphasis is on being frugal. When you view your money as a relatively fixed point, and do everything you can to live below that, you can miss opportunities. It is just the type of mindset you can get stuck in.

And I think the comment about sacrificing time for the pursuit of more money goes both ways. Yes, the pursuit of more money can take time, but the same is true for being overly frugal. You can also spend precious time trying to save a few dollars by doing things yourself.

But, the benefits of time spent on saving money (in my opinion) are relatively short-lived when compared to time spent finding more income. Yes, you can continually use money-saving methods to save money over the long run, but you often have to consistently put time and effort into these activities. But when you increase your income, you can find that many times, you can find that an increase in income may require some up-front input, but can then continue on or even grow further with limited or no additional work needed.

But that’s just me. I say save where you can easily, and then focus your efforts on earning more. It doesn’t mean you have to consume more, it just means you are focusing your efforts on what will yield the best returns over the long haul.

Silicon Valley Blogger April 14, 2008 at 10:05 am

Lazy Man and Jeremy,

Thanks for your thoughtful comments. Well, we all seem to be thinking alike. It’s like saying, the glass is half empty vs it being half full.

In the past, I had placed all my efforts in:
(1) being a good employee to get me raises and bonuses I came to expect and
(2) trying to keep most of my money by being as frugal (cheap?) as I could be.

Well that worked for a long time. These days though, I’ve come to expand my thinking and look into ways to raise the bar income-wise since I’ve entered a stage in my life when being frugal about everything wasn’t enough. Higher expenses and new financial obligations were cutting into our savings rate. To maintain the same savings rate, we could no longer limit the outflow, so we’ve turned to trying to increase the income (which of course, can also have its risks depending on what you’re doing).

At any rate, I’ve expanded my way of thinking about finances in the last few years, thanks to being part of the financial blogosphere, where I’ve met so many enterprising individuals. If it weren’t for this community, I’d still be working my 9 to 5 job. And ONLY thinking that I should be “spending less than I earn”.

I agree also that it’s all about how you spend your time — you could do it spinning your wheels and devoting your energy on work and chasing the next big idea. Or you can spend it all fussing over your budget and collecting coupons. And sometimes, it may just come down to “what you’re good at doing” or “what you enjoy doing”.

Some people are workaholics and enjoy their work, so that’s what they do most of the time. While others are experts at frugality and love the idea of thrifting.

Whatever floats your boat! But a combo of “save money” and “earn money” philosophies should eventually turn you into the Millionaire Next Door.

Mrs. Micah April 14, 2008 at 12:38 pm

Where we are, being frugal will help us get the most for our money but it really won’t build wealth. Can’t save it if we ain’t got it. 🙂 Our income isn’t very high, so it’s not like we could save $20k/year…whereas being creative and entrepreneurial (and using the money wisely once we get it!!) will give us more money to save.

AJC @ 7million7years April 14, 2008 at 4:21 pm

This is beginning to sound like a ‘religious war’ … Frugalism v Capitalism, which one is right?

We tend to forget that there is only one ‘Higher Object’ … in this case, the desire of all ‘financial religious observers’ to get RICH a.k.a. WEALTHY a.k.a. FINANCIALLY FREE.

How do you do that? By mixing ALL the financial ‘religions’ … become a Frugal Capitalist. Here’s an example,

I’ll show you how a frugal capitalist works:

I sold one of my businesses, so I decided to reward myself by buying a car: I COULD have afforded a new Ferrari (circa $250k), instead I bought a slightly-used (current model … only 1,700 miles on the clock; saving $35k off list) Maserati Gransport Spyder for $90k …

… top down, wind in the hair driving: pricelss!

Frugal Capitalism … for all the things that merely SAVING can’t buy 😉

MillionDollarJourney April 14, 2008 at 6:15 pm

I’m in the “do both” camp myself. I’ve written a good few times there are 2 concepts that need to be understood for to achieve wealth.
1. Spend less than you earn
2. Make more money

Personally, when I think about finances, i’m usually thinking about ways to make more money. Frugality is more a lifestyle than anything else.


Heidi April 15, 2008 at 6:25 am

Thanks for putting something I’ve been turning over in my mind into words.

I’m with Lazy Man in that you can be fairly frugal without a ton of effort, which I do when I can. For me, it’s really about capitalism. I am trying to make as much money as possible now so I can be debt-free and have a much higher quality of life later. The frugal part is the small effort it takes for me not to spend all of what I am making today so that I can enjoy it tomorrow.

FMF April 15, 2008 at 8:00 am

I prefer to do both, but it’s easier to spend less so that’s why I write on it more often.

RichSlick April 15, 2008 at 8:40 am

It all boils down to financial math. If you earn $40,000/year and inflation grows at 5% (each year) then each year you’ll lose $2,000 in purchasing power each year.

If you don’t receive a 5% or better raise each year, you’ll be fundamentally “frugalizing” yourself to nothing over the course of 30 years and left wondering why you can’t get by…

I don’t know how the pursuit of capitalism instead of frugalism = higher consumerism but that just goes to show you how screwed up peoples perspective on wealth are in this country.

Eric April 16, 2008 at 7:23 pm

Human desire can never been stopped. If you just think about earning more and do nothing with your spending, you will end up spend all you earned. People like that will never get rich, or at least, will never get a satisfying life.

AJC @ 7million7years April 17, 2008 at 6:22 am

… but, FMF, it’s harder to earn more, that’s why I choose to write about that side more often … and, other excellent PF bloggers (you included!) have the ‘saving more’ base so well covered already.

Thanks for opening this discussion, Digerati!

Ryan S April 18, 2008 at 3:59 am

My goal is to earn as much as possible without having to be a supervisor or be anybody’s boss. I don’t know, I just don’t like the idea of telling people what to do and hobnobbing with the higher ups that are full of BS.

I just keep looking for non-supervisory promotions and my average increase per year since I started working 6.5 years ago is 13%. I expect to keep up this pace with my next powerplay which will come with promoting into a whole new technical position next year.

Shaun Rosenberg April 19, 2008 at 10:16 am

I believe that earning more then you spend can lead you to a better path then spending less then you earn.

Epecially if this is passive income. If you had an income source outside of your job it could help take some of the pressure off of you and lead you to retirement.

Value For Your Life April 22, 2008 at 5:40 am

Some interesting food for thought in your post. I agree with both philosophies, and for me anyway, I think it also has to do with which stage of your life you in. I think that it’s important to start out with a foundation of good financial habits, like making the most out of the money you have when you’re in college, then focusing on spending less than you earn while you’re in the next stage trying to get on you feet, establish yourself, and get debt paid off, then on to the next stage of earning more to really accumulate wealth. Of course, for many people, the last stage in retirement goes back to making the most out of the money you have…I wonder if I’ll ever want to completely stop working though…

Mrs. Accountability April 22, 2008 at 5:04 pm

For the longest time, we struggled to live within our means and it worked for a while. But one day, a friend said said something to me that really turned my thinking around. She was actually talking about a business she knew of that was struggling and instead of trying to bring in more money, they were stuck in a poverty mentality. I realized we had been doing the same with our family finances, and realized it was time for us to figure out how to make more money, because we could no longer live comfortably at that level ($25K/year). We managed to double our income in 2007, but now we feel run ragged. Mr. A recently quit his “9-5” job and started his own biz which we hope which help us get back to a more peaceful existence because he’s able to make more money with less hours. Once he’s established, I hope to quit my “9-5” as well. Nice post, thanks for sharing at the Festival of Frugality.

Avery Parker February 15, 2009 at 12:10 pm

Good post – it’s also a good approach to managing business finances. It makes for slow startups, but in the long term it’s a solid foundation. If you get used to spending less than you make, as your earnings increase you will already have a certain amount of discipline that can make those profit margins even greater.

I think it’s important to do your budgeting in percentages instead of fixed dollar amounts for the MUST do items. (Taxes/savings). I’m even experimenting with setting aside percentages for advertising, etc. If you do things right, that way you know that you have never budgeted more than you have. 100% maximum for all budget items.

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