Saving vs. Making Money: Which is Better?

Cutting down monthly expenses is a simple and powerful way to save a lot of money quickly. 

Saving money is both easier and more effective than earning more.

Why?

Because savings multiply over time. You might spend 1 hour this month figuring out how to save $100 per month without downgrading your lifestyle. That’s $1200 per year.

Think about it like this: If I asked you to work 1 hour for $1200, would you do it? 

The answer is obvious.

Most of you will be able to save at least $100 extra per month, if not more, without downgrading your lifestyle whatsoever.

Alex and Jamie – Who would you rather be?

Alex and Jamie were two friends, who both wanted to save some extra money each month.

They each take home $4,000 after working 160 hours per month, with total expenses of $3,500, leaving them with $500 in savings each month.

Faced with the desire to increase their savings, they each chose a different path.

Alex’s Choice: Working Harder

Alex decided to work an additional 20 hours each month to earn an extra $500. Here’s how his numbers look:

• Income: $4,500
• Expenses: $3,500
• Leftover: $1,000
• Time Spent Working: 180 hours

Outcomes for Alex

• Increased Savings: Alex managed to save $1,000 per month.
• More Work Hours: Alex ended up working 20 extra hours per month.
• Higher Stress Levels: The additional hours made Alex feel more tired and stressed.

Good job, Alex. You achieved what you wanted, but at the cost of more work hours and potential burnout.

Jamie’s Choice: Working Smarter

Jamie, on the other hand, decided to optimize her spending. She spent one hour reviewing her budget, canceling unused subscriptions, and cutting other unnecessary costs. Here’s how her numbers look:

• Income: $4,000
• Expenses: $3,000
• Leftover: $1,000
• Time Spent Working: 160 hours

Outcomes for Jamie

• Increased Savings: Jamie also managed to save $1,000 per month.
• Same Work Hours: Jamie continued to work 160 hours per month.
• Lower Stress Levels: Jamie felt less stressed since she didn’t have to work extra hours.

Comparison: Alex vs. Jamie

Before making changes, both Alex and Jamie had $500 in savings each month. After their respective strategies:

• Alex: Increased savings to $1,000 by working 20 extra hours.
• Jamie: Increased savings to $1,000 by spending one hour optimizing her budget.

Key Benefits of Saving

Saving might not be as glamorous as earning more, but it has powerful benefits:

• Permanence: Saving permanently decreases the amount you’ll need every month for the rest of your life. It also permanently increases your savings.
• One-Time Actions, Lifetime Savings: A single effort to cut expenses can result in recurring monthly savings.
• Compound Effect: Savings can be invested to grow over time, for example, in high-yield savings accounts or stocks.
• Reduced Stress: Having extra savings provides a safety net for emergencies, reducing stress and improving overall well-being.
• More Freedom: Lower monthly expenses mean more options for future investments, travel, or other enjoyable activities.

Limitations of Saving

While saving is powerful, it has its limitations:

• Income Requirement: You can’t save money that you don’t have. Income is essential.
• Basic Needs: Certain expenses are non-negotiable, such as housing, utilities, and groceries.
• Diminishing Returns: After cutting unnecessary expenses, additional savings may require significant lifestyle changes.
• Missed Opportunities: Being overly frugal can lead to missed investment opportunities that could enhance your life quality.

Next lesson

In this lesson, we’ll fine-comb your monthly expenses to find all those monthly expenses where you can save money.