Sunday, December 3, 2006

Get rich by increasing income, not cutting expenses

I've seen a lot of personal finance advice thrown around on a lot of different websites/blogs/books that focuses on the little things. For example, people are advised to re-use teabags to save money, clip coupons, make coffee at home instead of buying it on the way to work, and other tips that I would put in the general category of "being frugal."

This advice definitely has its place. Being frugal will allow you to save more money in the long run. If you can cut your expenses dramatically, you can definitely become richer (from a financial standpoint).

However, I think people sometimes tend to focus too much on the expense side of the equation. Instead, they need to focus on the income side. I would argue that it is dramatically easier and will make a more significant change in your life if you increase your income than if you cut your expenses by a small amount.

Don't get me wrong, I think most of us have a good $100 a month we can squeeze out of our budgets, and I recommend that we all take the time to identify this $100 and eliminate it. However, once you wring the big stuff out of your budget, your opportunities for cutting costs are very slim. You can cancel your cable television, get a cheaper cell phone plan, sell your old junk on eBay, give up the Starbucks habit, but eventually you come to a point where you're splitting hairs. Once you find yourself washing out sandwich bags, I recommend you stop your intense focus on being frugal and instead shift your efforts towards maintaining your expenses and especially on growing your income.

So how do you grow your income?

This answer is different for every person reading this blog. I hope to shed some insight into this in future posts (I have more than doubled my income since I first started working in 1999). If you're in my position, you will want to make yourself a better employee. If you're a small business owner, you might want to look for ways to increase sales, add new value for your customer, or something else along those lines.

No comments: