A few months ago I threw out my first Twitter poll! Not bad for a social media challenged Millennial. The question?
Is Increasing Income or Cutting Costs more important when pursuing Financial Freedom?
Which of the below is more important when pursuing financial freedom?
— Apathy Ends (@ApathyEnds) April 26, 2017
Damn, the poll was a lot closer than I expected! 203 votes were logged and 58% of the votes went to increasing income. I purposefully only put two options on the poll to get people to decide on one over the other as MORE important. There were still plenty of fence-sitters, but I understand why. Both are very important and depending on your situation, one may be the clear winner.
If you want to see the fence sitters, their responses are still in the link above
Some of my favorite responses from the Increase Income side:
Ty from GetRichQuickish (Fence sitter 🙂 )
The Cutting Cost Crowd:
Going back I would have made my question a little more specific and asked which is more important for Millennials or younger. There was a lot of “it depends on where you are at” responses.
Should I Focus on Increasing Income or Cutting Costs?
I wasn’t able to vote in my own Twitter poll, but my vote, especially for the Millennial crowd, is to focus on increasing your income. Probably not a surprise to any of you that read my thoughts on cost cutting (Go top down people!)
Of course, my vote is based on the assumption that you will use your raises for good (Saving, Investing, Debt Reduction) and not evil (Lifestyle Inflation, Banana slicers or Selfie Toasters).
Digging into my reasoning a little further.
You can only cut costs far
I know there are some ultra frugal, savvy cost cutters roaming around out there turning water into wine, but eventually, you will run out of ways to cut.
The farther down the cutting path you go, the less impact each decision is making. I am all for saving money, but I don’t think it should be eating significant chunks of valuable time (ie. time you could use to bump up that income).
Sometimes, you won’t have a choice but to increase your costs. Case in point, having a child. No matter how frugal or creative we become….
We will not be able to cut out the increase in insurance.
We won’t be able to find a free daycare provider.
The only way to make those costs up and stay on the same track to Financial Freedom is increasing our income.
You can increase your savings rate without cutting current lifestyle
What’s better than living like you are today and saving more?
In the Personal Finance world that is about as good as it gets. Improvement without sacrifice! Sign me up!
We have been banking our raises for the last 3 years (sometimes 50%, sometimes 100%) and the results are amazing. Check them out for yourself. Hands down, the change in our income has been the catalyst. We have cut some costs, and it does work, but I like saving more without sacrificing more.
Balancing Effort with Results
Where is my focus BEST spent?
If you aren’t going to fully immerse yourself in the world of finance (like yours truly) then you should be asking yourself this question. Where can the biggest gains be made that don’t require a constant commitment?
This is a lesson I am still working on, not just with money but with my time, both at work and on this site. Should I spend more time writing or on social media? Should I spend more time at work or on this passion project?
Applied to finances, especially with my point following this one, I think the effort increasing your income is the best use of your time.
Increasing Income Pays Future Dividends
Here we go again, but I am going to go back to one change continuing to pay you Every.Single.Month.
If you decrease your housing costs….BOOOM – you are rewarded 12 times a year with a lower payment.
The same principle applies to your income. A $1,000 raise gets paid out for the remainder of your working years. And to make this deal even better – raises compound!
Starting at $40,000 with a 5% compounding raise for 10 years
From $40K to $65,155.79 in ten years!
The younger you are, the bigger impact it will have (sounds a lot like that investing thing we all get so excited about).
What I love about cutting costs
This isn’t a one-sided argument, 2 things stand out to me on the cost cutting front:
- The less you spend, the less you need – If you use a withdrawal rate (4% for example), the less you spend every year means the less you need to accumulate. As long as you are content with where you have cut your costs down too, this is a HUGE advantage.
- Cutting Costs is in your control – Always exceptions to the rule, but how much you spend (outside of thieving taxes) is in your control. You aren’t depending on your boss or company to up the ante and pay you more.
Do you focus on increasing income or cutting costs? Do you agree with my vote for the millennial and younger crowd?