Personal Finance

Reduce expenses or increase income? Which is more important?

I’m assuming you’re reading this blog because you want to have more money, maybe you want to retire early and be financially independent.  Having more money will obviously help towards making you more financially comfortable.  In order to increase your savings and meet your goals you have two options:

  • Reduce expenses
  • Increase income

But which one should you focus on?

Reduce Expenses

The default option for most people tends to be to cut down on unnecessary expenditure and depending on how frivolous you already are with your spending this can have a drastic impact on your savings.  This is a lifestyle change you can make immediately and doesn’t take you much time, it is more about changing your mind set and attitude towards money.  Before making any purchases simply ask yourself “Do I need it?”  and “Will I use it?” therefore you only spending money on things that add value to your life.  Start tracking your expenses, look through your bank statements and you will most likely spot opportunities straightaway for reducing your expenses.

A lot of blogs focus on frugality and I consider myself to be very frugal.  There are very well known books such as The Millionaire Next Door and The Automatic Millionaire which are about those with average incomes living a frugal life, spending below their means in order to accumulate wealth.  I believe frugality is important, especially in the early stages when it is harder to grow wealth.  As your net worth increases it becomes easier and easier to make more money due to the beauty of compound interest, as they say money attracts money.  Initially when your net worth is low expenditure is a large chunk of your net worth, as your wealth increases each expense has less and less impact on your finances.

wallet change

However you are limited with how much you can reduce your expenses and at a certain point it starts to have an impact on happiness and quality of life.  At first it is easy to stop buying clothes or the latest technology that you don’t need, but how far do you go?  Do you avoid going on long haul holidays?  Do you avoid eating out with friends?  Do you commute by bike rather than buy a car?  Some people are incredibly happy to live frugal lives, there are even some that enjoy living in very basic conditions out in the wilderness.  It is most definitely a personal choice on how frugal you are willing to be and I don’t believe anyone should compromise happiness in exchange for extreme frugality.  It is all about striking a balance with enjoying your life and increasing wealth.

Increase income

The other option is to increase your income and income is unlimited.  In today’s world with the technology we have there are so many opportunities for making more money that you can take advantage of.  I would highly recommend the book Money: Know More, Make More, Give More which explains how lucky we are to have these opportunities that anyone can take advantage of, the author himself, Rob Moore, has gone from being in debt to building very successful companies and being in a position where he is now financially independent.

There are so many ways you can increase income such as asking for a pay rise from your current employer, doing overtime or leaving your employer for a better paid job.  You could also invest in yourself and learn new skills or gain an additional qualification to increase your worth to an employer.  However if you rely on employment for income although you can increase your income, your earnings are limited by how much your employer is willing to pay.

Income from self-employment on the other hand is unlimited.  You can start your own side hustle and eventually build a company that will provide you with a passive income.  Passive income is something that takes a lot of time and effort to build depending on how much money you are starting with, if you do not yet have any money to put into starting a side hustle click here for some active income ideas you could get started with now.



Reducing expenses and living a frugal life can only take you so far and you can become financially independent with this mind set.  However there is no limit to how much money you can make, if you want to be financially independent and enjoy the fruits of your labour than increasing income is way more important and can bring you retirement date forward by many years or even decades.

3 thoughts on “Reduce expenses or increase income? Which is more important?

  1. Thought-provoking article….it’s really got me thinking and raises some issues that I’d just not thought of before. Definitely something that I’m going to re-read in the new year when I start planning for 2018. Thanks!

    Liked by 1 person

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