Saving Money vs. Making Money
The age old tug of war – saving money vs. making money. Which is more important?
There are a lot of websites out there that focus their content on just one side of the coin. One famous website focused on saving money that I read is Mr. Money Mustache. A great site that is focused on making money is Smart Passive Income. Here, I’m trying to focus on all three factors to help us build wealth and get rich (saving money, making money, and investing money).
But for the discussion today, if you had to pick just one area to focus on first, would it be saving money or making money?
Return on Investment of Time – Saving Money vs. Making Money
Usually making money wins out in terms of the return you get on the investment of your time. There are many times in our lives where a couple of minutes spent negotiating for more money can have a huge impact on our lives. The most obvious point in time where you can earn literally thousands of dollars per hour for your time is when negotiating your salary or wage at a new job. For all the jobs that I’ve taken so far in my life (seven total) , I’ve made the HUGE mistake of not even trying to negotiate for higher compensation. This has definitely hurt me over years, but now that I fully understand how important salary negotiations are, I won’t make the same mistake in the future.
Another example where you can get a huge return on the investment of your time when making money is when you’re in the process of selling something that you own. Whether its a home, used car, or some crap out of the closet, if you’re in a rush to sell something you will almost always leave money on the table. “But, Derek” you might say, “I don’t have the time to haggle over prices.” Please remember that everything is negotiable – especially when you’re selling your used stuff. I’m trying to sell my 1997 Camry currently for ~$1,000. I priced it at $1,500 on Craigslist knowing that folks would try to low-ball me. I got a call literally 10 minutes after placing the ad from someone offering me $1,200 cash on the spot with no questions asked. I still believe I can get a little more out of it. This just goes to show that an extra couple of minutes can put 20% – 30% more money in your pocket with little to no effort!
My experience has been that saving money usually takes more discipline and takes a little bit more of an investment of your time.
Winner for Return on Investment of Time: Making Money
Bigger Impact on the Bottom Line – Saving Money vs. Making Money
So does saving money or making money have a bigger impact on the amount of money left over in your pocket at the end of the day? Here is where I believe that saving money takes the lead. Remember, we all pay about 20% – 35% taxes. This means that when we save post-tax money, it goes straight to our wallet. This is a pretty simple concept that my Dad and I were talking about the other day, but it took me a minute to understand what he was talking about. Here’s a table to help illustrate the point:
| Saving vs. Making | Taxes to Pay | Amount in your Pocket |
| Negotiated $100 more a month in salary | $30 | $70 |
| Saved $100 a month by reducing bills | $0 | $100 |
So you see, even though saving money can be more difficult or take longer to sort out, you’ll get a 30% premium for your time! Because you’ve already paid taxes on the money you spend, it goes straight to your wallet. This is why living below you means can be the most important aspect of building real wealth!
Winner for Bigger Impact on the Bottom Line: Making Money
Final Thoughts – Saving Money vs. Making Money
Most people I’ve met have a preference or affinity for either saving money or making money. It depends on where you are in life, how much you make currently, and where your current savings rate is.
If you couldn’t tell by now, I gravitate towards saving money. If we can expand our skills and abilities in both areas of saving and making money, then we’ll really be on the path to success! Which do you prefer, saving money or making more money?
From what I have seen the learning how to save is the most important by far.The reason is pretty simple: you have to learn to spend less than your income.
People’s spending always seems to grow with income. You have to learn the savings discipline so that when your income grows you are able to put something aside.
Kevin H @ Growing Family Benefits recently posted…Universal Life Insurance Option A versus Option B
Kevin,
I tend to agree – I naturally default to saving. I think it’s almost a two step process. First you develop good habits and practices to living below your means and spending less. Then, once you’ve optimized that to death you move onto trying to make additional money to up your saving % even more!
That’s a very interesting breakdown. One thing that I would add though is that earning a higher salary has a compounding effect. While you will be paying more money in taxes, your total earnings will be higher than the one time budget change. You’ll be able to invest your new earnings. But, then again…I guess it depends on what you do with your $100 in savings from reducing your bills too. I could see the value both ways.
Hank at Money Q&A recently posted…How Fantasy Football Is Just Like Investing In The Stock Market
Hank,
I see it a little differently. If I cut out cable and save $100/year, this is a savings into perpetuity. This could be put into investments. You’d have to earn an extra ~$130 a year to equal the same amount due to taxes. For most of us, a raise will be much larger than $130 per year hopefully, so it may be more easy to come by…
I prefer saving money because I find it easier to do compared to making more money. However, I feel I’m at a point where I am quite disciplined with saving and am now looking towards making more money, which is not always the easiest thing. Making money can also take some time and take up more of your time.
MakintheBacon recently posted…A Trip Down Media Memory Lane – Part II
MakintheBacon,
It sounds like we’re in exactly the same boat. I’ve focus a lot of saving over the past couple of months and have made some great strides there. Now, I’m turning more of my attention towards making money. For us savings bugs, it is a lot hard to make money – I agree!
While in reality a two-pronged attack is the best where you make more and save even more, if I had to chose I would go with making more money.
Let’s face it…there is just so much that you can cut back on…there is a limit. Two, it requires lots of discipline and effort which honestly is lacking in most people otherwise we’d be have a higher savings average as a nation. Third, it can be an emotional battle cutting back on some things we love.
Making money of the other hand, the limits are mostly in our imagination and just how hard we are willing to work! Everyone pays taxes whether you are making more or less…they better tax me when I have more to show for it at the end and secondly, there are creative and legal ways to minimize ones tax burden…the rich end up paying way less tax than the rest of us!
Simon @ Modest Money recently posted…Scottrade Review – Exclusive Review of Scottrade Investment Brokerage
Simon,
Great points. I think one has to be careful though. There are plenty examples around us where folks make more money only to get further and further into debt. I think you’re correct in saying that it is a two-pronged attack. You really have to be good at both to get ahead financially.