spend less than you earn – the wrong way to think

The wrong way to think: “spend less than you earn.”

If you have been reading about personal finance for any length of time, I’m sure you’ve come across this advice before. It is the wrong way to think, and it will not make you rich.

Don’t get me wrong: it is not bad advice. If you are struggling to get out of debt, or prepare yourself for retirement at age 65 or later, it is fine advice. For most people this may be the best advice that they ever receive. However, it is the wrong way to think. The right way to think is this: earn more than you spend.

“Wait a minute,” you may say, “that’s the same thing.” No it is not. If you earn $1000 per month, and save $100 per month, you’re doing a great job. However, this is thinking that puts a limit on your future. If you continue to earn $1000 per month, you can never save more than $1000. Your pool of money for building wealth will never increase.

However, if your living expenses are $1000 per month and you can think of ways to earn more, there is no limit to your savings or investing or wealth building opportunities. If your living expenses stay at $1000 per month and you can earn $2000, you have $1000 to build wealth. That $1000 can itself generate more cash (dividends, a business, etc.) and soon you may be making $2500 per month. There is no top limit in this scenario, as long as you earn more than you spend.

“I can’t earn any more than I do now,” you say. “My salary review doesn’t come up until May!” You can always earn more money. It’s true; I am willing to bet that everyone has some way they can earn more. A quick list off the top of my head of a few ways:

  • Sell all of your old CDs and DVDs on eBay.
  • Sell all of your old books on amazon.com.
  • Start a blog (with ads).
  • Offer to give people in your neighborhood a ride to work for a monthly fee.
  • Look for money owed to you on www.missingmoney.com
  • Take an online survey.
  • Sell a funny t-shirt on cafepress.com. I plan to do this soon. Want a Brip Blap t-shirt?
  • Invest at Lending Club.
  • If you aren’t already putting money in your company 401(k) and your employer has a matching program, sign up today.
  • Get a cash back credit card and use it carefully.
  • Write an e-book. You’ve gotten this far in life doing stuff – there must be something you can offer tips on!
  • Prepare a price book for your local supermarkets and sell it to other people. Or create an email list and ask people to subscribe.
  • If you have a house with extra room in your garage, rent space for people to park their cars while they are on vacation.
  • Write a novel. If this woman can do it while caring for three little kids right after her husband left her, so can you.
  • Start a drop-ship business.
  • Learn to prepare taxes.
  • Make a cute calendar at kodakgallery.com, then resell it to the public.
  • Set up an amazon a-store. Tell all of your friends and relatives to stop there before buying anything at amazon.
  • Put a PayPal Donation button in your email signature. Ask for $1 for good karma. I have never tried this, but I am willing to bet it will yield more than nothing!
  • Open a high-yield savings account.
  • In Maine, Vermont, Connecticut, Massachusetts, New York, Delaware or Oregon, take your plastic bottles back to the store where you bought them for a $.05 refund.
  • Start doing stock photography and sell your work on iStockPhoto.
  • Print all of your favorite recipes on 3 X 5 index cards, with cute graphics and large, easy-to-read directions, and sell them. People like having something small on hand instead of needing to take up counter space with a book while cooking.
  • Teach at an online school.
  • Become a mystery shopper.
  • The next time you go out of town, look for clever souvenirs from that town. Resell them when you come home, or on the internet. A friend of mine made thousands doing this.
  • Become a resume writer.
  • Can you make arts and crafts? Sell your work online at etsy.
  • Create a line of greeting cards.
  • Marry someone rich 🙂

The simple fact is that if you are looking to retire at age 65, keeping your head down and slogging away at your main source of income while saving a little bit here and there will get you there. That’s not a bad thing! If you are happy with your job, keep your spare time free and do what you like.

However, if you want to get out of the “rat race” – if you want to be free to do what you want when you want – you have to build wealth faster, and the best way to do that is to earn more than you spend.

79 Replies to “spend less than you earn – the wrong way to think”

  1. One of my former co-workers enjoyed the spinning class in our company’s gym so much that she became so good at it, she could teach it. And she did, when they needed to fill the spot and got paid for it. This way she was still a corporate employee with a full time job and 6 figure salary + she was making some cash on the side doing something that she was benefiting from, like awesome workout.

  2. Some of these are great ideas. I hadn’t heard of iStockPhoto. Might be a fun thing to try since I just splurged on a better digital camera for myself a couple of months ago. And buying touristy trinkets for cheap and then reselling them looks like a good idea too.

    A word of caution: While the J.K.Rowling example does show it’s possible to find the time to write best-selling novels when you are truly busy, do keep in mind that not everyone will be able to write well. Rowling had a wonderful set of ideas, she created a unique fictional world, and she fleshed it out beautifully. If you want to write a novel, fantastic. Go for it. Just realize that you have to read your genre to know what sells and what has been done to death. You have to learn about writing techniques (points of view, tenses, etc.), and you have to practice. A lot. You also have to learn about the industry. Just because you and your mom like your work, doesn’t mean an agent will, or that it will sell. You also have to learn to take (constructive) criticism and apply it, no matter how much it hurts at the time.

  3. Some great ideas about how to make extra money.

    I disagree that you have to work until 65 just because you don’t have any “extra income”. The reality is that the amount you can save from your total income, regardless of the source, combined with how much you spend, will determine when you can retire.

    Another thing to keep in mind is that not everyone wants to work extra hours for money. A lot of people would be well served (perhaps even better served) to work on spending less money rather than trying to earn more. Another idea is that someone who perhaps makes a good salary could use some of their extra time doing things that they would normally hire someone else to do like house maintenance, cleaning etc. This won’t provide extra income but it will save a lot of $$.

    1. I think it is a failing in some respects of the PF blogs that they don't focus more on ways to create income as opposed to spending less. I think a nice mixture of the two is the key – moderation in all things!

  4. I bookmarked your tips, but I think that in most cases, the law of diminishing returns come into effect sooner for taking on extra jobs than it does for saving money. In other words, it’s generally easier in terms of time and effort to figure out a way not to spend money than it is to take on more work. You don’t pay taxes on the former either.

  5. While I wouldn’t disagree with anyone who says that we all need to save more and spend less, I think that Brip Blap’s point is not that we need to do lots of little things (which would certainly be exhausting), but that we should pursue one or two things which really interest us. Even if they don’t yield a lot of money at first, if we persevere, there is the potential for making a significant second income. In my case, as a teacher, I “gave away” my expertise in a certain field (with 5 other teachers) for two years. Finally this year, our district took notice of our success and hired the 6 of us to give formal classes to other teachers. I have hopes that eventually, when I don’t have the energy needed for full-time elementary classroom teaching, I’ll be able to continue teaching other teachers on a part-time basis. The point is, therefore, start doing something that interests you and keep at it–you just never know where it will take you!

  6. I always say this in my blog as well, some people just don’t get it.

    My point is to become wealthy, so continue to increase your income in the process.

    But you said it best, “If you are strugging with debt, spend less than you earn!

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  8. It’s always wise to grow the top end (revenue) while shrinking the expenses. One thing I would caution against, is “Sell all of your old CDs and DVDs on eBay. If you like, burn copies first.” It sounds good, but I’m not sure how legal it is. It makes it seem like you could just buy used CDs on Ebay, copy them, and then sell them again. The artists would never get paid in this scenario.

    All that said, I doubt you’d ever get caught if you did this.

  9. I love postings like this because they motivate me to do more! I think especially at this time of year, people are feeling like cleaning out their homes, so it helps if they can make money in the process (by selling or donating and using the donation on their taxes!).

  10. Gosh, you’re pretty darn conservative on the strategic approach to spending. And yet, pretty liberal with the copyright laws…

    Best of both worlds thinking is a little utopian. Especially when it is you that has to live your life.

    I’d be interested in knowing how much of your advice you take yourself.

    I guess what I’m trying to say is this: Stick with the great goals and the true talk about reaching those goals… but be realistic about the goals others will actually set for themselves.

  11. Great comments. I’ll try and address a few of the points!

    @FourPillars: Mike, I agree you don’t have to get “extra” income per se, but the idea is that for most people expenses will increase over their life, so if revenues don’t, too, you’ll lose ground. As you and I both know, kids add expenses for example. Not working extra hours for extra money is of course fine. Not everyone wants early retirement – many people are happy enough with the status quo, and that’s not a bad thing. And I agree that spending extra time doing house maintenance, for example, is in effect “earning” extra income.

    @Fecundity: Definitely not everyone can write well, and Rowling is definitely an anomaly. However, not everyone needs to succeed to her level. It’s simply an idea. I could just as easily have put “write songs” or “paint pictures” or something like that. Your advice for writing a novel is good!

    @Early Retirement Extreme: The law of diminishing returns kicks in for some moreso than others. If I can write a book, or invest in a business that grows and returns some of that investment to me, etc., the effort I have to put in initially in fact decreases while (hopefully) revenue grows. Selling things on eBay? Yeah, that’s limited. But saving – as I said – has a firm limit of the amount of revenue you take in. I can’t save 110% of my revenue. I can increase my revenue 10%.

    @Ruth: That was, exactly, what I was getting at – looking for ways to take things you might already be doing and make some money off of it. I like to think I’m doing the same thing with blogging – I’m taking something I have been doing for free for years (Brip Blap was a very unsuccesful political blog for years!) and enjoying it and making a little money off of it. Win win. 🙂

  12. (continued)
    @Moneymonk: There is definitely a huge difference in increasing wealth and decreasing debt – it’s two different activities. That having been said, there are some great debt-reduction blogs filled with tips on getting extra income to help reduce debt quicker.

    @deepali: Ha! 🙂

    @LazyMan: You are correct. It is probably not legal, and I actually removed the burning suggestion. That having been said, I doubt the artist gets paid when you buy used CDs, anyway, so even reselling it hurts the artist.

    @DollarFrugal: Glad it helped! You’re right, this is the time of year people start thinking about taxes and cleaning up for the new year and how the last year went, so making next year better becomes a preoccupation!

    @HeMan: As I said to LazyMan above, you’re right. And yes, it is a little utopian – it’s a goal. That having been said, I do apply this in my own life. My wife and I both worked professional jobs four years ago, and lived in Manhattan near Central Park – i.e. very expensive. Since then, she quit her job to stay home to raise our son, we moved to a significantly less expensive suburb of NYC (although still very expensive), I quit my time-consuming job to become a contract consultant, and despite reducing our take-home income by about $70,000 all told we save 25% or more of my annual income, both of us started side businesses, I do freelance writing work, I’m working on a book and we are adjusting our investments to maximize future income from them. So yes, I live a significant amount of this advice. Some of it, as I mentioned, comes from friends of mine – so it’s not something I do, but something I know people have success with. I know people who do almost all of these things (making the calendar was just an idea off the top of my head, I confess). I save and at the same time we both work hard to increase our “non-job” income. Other people are, of course, free to take or leave what parts of my advice they see fit!

  13. Great post, Steve. Although I married for love, not money ;o) , I have done several of the other things on your list.

    I think it is most important to choose things that you can do once, and make money from again and again. That usually involves creating some kind of intellectual property. For example, books, ebooks, blog posts and web sites (supported by advertising or other income sources), or other ways of creating or inventing something that can be sold again and again.

    Nice food for thought–I look forward to reading more of your blog.


  14. I think that “spend less than you earn” can be a bit misleading. In a way, it almost suggests that you don’t have to examine your spending, so long as it is lower than your income.

    I did that for a long time and thought I was doing all right. But then I woke up and I realized that I didn’t have enough in the way of savings to retire comfortably or to pursue options that might become available in the future (business opportunity? rural property? graduate school?).

    It is not enough just to spend less than you earn, at least not for me. In my case, all spending is not equal. I have to sit down and really ask myself what is important and then eliminate spending that does not align with my values. I also have to think about what kind of things I need (insurance, for instance) and might want to have in the future, and then look for alternate income streams that can help me afford those things.

    Most of us will not have the time or the particular talents to do all of the suggestions on Steve’s list. But some I am doing already, and a few others are ones that I had not thought of but could easily do on occasion and would not require a lot of time.

    I think that reading the things on the list will help me get into the proper mindset — the mindset of looking for a way to turn an interest or an item into an alternate income stream — that will help me come up with more ideas on my own.

  15. Great read! I will disagree on one small issue – “The right way to think is this: earn more than you spend.” does not always apply. I work with person who earns well into the 7-digits, and is flat broke. Between cars, houses, vacation houses, ex-wives, etc., he can’t earn enough to keep up with his spending.

    At any rate, it was a great read. Thanks for sharing! I plan to include your article in my weekly carnival review Friday.

    Best Wishes,

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  17. @D4L: Oh, you’re right – you could of course increase spending and earning in tandem forever without getting ahead. It’s important to keep spending increasing at a slower rate than income is increasing. Glad you liked it!

  18. Thanks, Laura – that’s such a nice comment. I really appreciate it! The title was meant to be a bit incendiary, for sure – I’m glad to hear it got at least one person to read it 🙂 I’ll definitely get to work on a t-shirt soon…

  19. Hi,

    I came to your blog through the Carnival on personal finance. It is completely amazing to see what you have written.

    Initially when I read the title I was surprised to the point of annoyance. However the title seemed so catchy that I got hooked up with the flow and read it throughly. I love all the points…they are simply amazing. I understood your point once I went through the article. 🙂 And one more thing….I will be waiting for the sale of Brip-Blap T-shirts for sure.

  20. “Spend less than you earn” isn’t necessarily the wrong the way to think. It just shouldn’t be the only way to think.

  21. Ah, a post after my own heart. Developing new streams of income has been a big push for me over the last month as I really can’t reduce my spending much more. Some new ideas that I will have to look into. I’ve never heard of iStockPhoto.
    Thanks for a great post.

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  23. Great post! I agree with the idea of earn more than you spend over the idea of spend less than you make. Even, if it is only a shift in thinking, then it is more positive because of the idea of “more” is positive. The same applies to thinking “for things” vice thinking “against things”, i.e. instead of thinking “anti-war”, one might be better served by thinking “pro-peace”.

  24. I love this post. And there’s some fabulous tips for those who want to earn more.

    And what you say is so true. In my business, whilst we do benefit by cutting costs, we benefit far more by increasing our profits.

    I imagine that if you obsessed about cost cutting to much, you’d find it much harder to attract more money into your life.

  25. Another way to earn more is to focus what you do at your regular job on things that are likely to increase your income in the long run, by getting you more clients or qualifying you for a big raise, a promotion, a more highly-paid job elsewhere, etc. I see Ruth’s comment as an example of this.

    Thanks for all the suggestions. I have also tutored and scored essay questions on standardized tests, and I’ve heard of people proctoring tests, teaching informal classes, and delivering phone books.

    I’m much better at thinking up ways to be frugal than ways to increase my earnings, so I really enjoyed this entry. I’m going to think about selling something on etsy or cafe press.

  26. Thanks mbhunter, Cindy S, YooperSmith,Catherine and Debbie M! I’m glad you’ve found the post helpful – I like Catherine’s point about attracting money into your life. You have to have the right attitude to do that. I hope some of the tips work out – let me know if they do!

  27. Hey, I love this post, but I have one quibble. Please don’t advise people to make money by writing a novel. First of all, it’s a lot more work than anyone who is not a writer really understands. Second, 99.999% of people who try to write novels are terrible at it. And even if you can write a good enough novel to get published, you’d be lucky to get a few thousand dollars as an advance, and would end up averaging far below minimum wage for all your hours of work. Illegal immigrants make more money picking lettuce than the average novelist. Lastly, as a writer who has published a number of short stories and written (but not published yet) a novel, I hear this suggestion a lot–write a novel (it’s easy) and make a lot of money. The truth is that any woman who can write and publish a novel while caring for three small children is an amazing, exceptionally talented, hardworking human being.

    Anyway, it would be much more lucrative to work nights at Starbucks than write a novel. Only people who feel absolutely compelled to write a novel, and/or have good reason to think that they know how to write (having been paid real money for your writing is a clue) should tackle novels.

  28. @Catherine Shaffer: Speaking as someone who writes semi-semi-minor-league-professionally as a blogger, I agree completely that writing a novel would be a daunting undertaking and probably not very lucrative. That’s good advice, and even though I would never discourage anyone from trying, if they want to try, I would tell them to read your advice a dozen times before dreaming of the yachts they’re going to buy off their Great American Novel….

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  30. Shannon and Steve: I read a lot of political blogs and they are asking all the time for people to send them money to help keep their particular ideology on the internet.

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