There are two diametrically opposed camps among personal finance writers, bloggers, and professionals: those who tout the benefits of minimizing your spending and cutting costs wherever possible, and those who propose finding ways to maximize your income and earn more money to cover the lifestyle you want.
Some bloggers take an approach which blends these two concepts, but it is an interesting study to look at the advantages and disadvantages of both sides.
The Spend Less Camp
One of the pioneers of the “spend less camp” was David Bach. His “latte factor” brought the power of saving money to the mainstream. The “latte factor” essentially highlights the amount of money you can save by cutting out a daily latte and investing that money . . . or saving that money for future expenses.
Many other personal finance bloggers such as Trent from The Simple Dollar and even Dave Ramsey fall into the “spend less camp.” Their first goal is to teach folks the value of saving money and keeping a very strict budget. Their second goal is to teach them practical ways to actually save that money.
This is a powerful concept because we all have expenses in our lives that are needless, and it is imperative that we spend less than we earn if we want to ever have a hope of being financially sound. Analyzing the expenses we have and finding ways to cut those expenses can save you hundreds — if not thousands — of dollars each month. If your monthly budget is tight, this is a very practical and often easy way to make your budget work.
The “spend less camp” has taken a hit in recent years and been criticized for extreme actions. This has likely been the result of reality shows such as Extreme Couponing, which highlight out-of-the-ordinary individuals. The folks on these shows are not your average I-just-want-to-cut-my-extra-expenses individuals, but rather those who are borderline insane about trying to cut costs. The funny thing is that these same folks often become hoarders and spend even more money than they would have if they had shopped normally.
Spending less has its benefits, but it can only take you so far.
The Earn More Camp
There have been many proponents of this concept in the past, but the person who is at the forefront in 2013 is Ramit Sethi. On his blog and in his book, Ramit blatantly tells us that he hates the “latte factor” and that he does not cut costs that inconvenience his life, choosing rather to earn more money to cover those expenses. His main philosophy is that you can only cut your expenses so far, but your earning power is virtually limitless.
This concept can be a powerful motivator and Ramit has created an empire around teaching his students how to earn more money. You may not agree with his brash tactics, but it is hard to deny his results. He has helped coach hundreds of students into generating successful side businesses which are generating additional income and funding the expenses they are unwilling to cut.
Ramit and others believe that by creating a side business you will be able to generate at least a few hundred dollars extra each month which you can then use to meet your savings goals. You can also use the extra money to pay for those expenses each month that you are unwilling to cut.
The eventual goal does not have to be owning a business or starting a large operation. It can be as simple as earning some extra money each month to make ends meet, rather than cutting expenses. That is the core of Ramit's message.
The Bottom Line
Which camp do you fall in?
Would you rather cut out expenses each month or create a new way to earn extra money to pay for those expenses?
I believe there needs to be a balance of these two camps. It's pointless to earn more money if you cannot control your spending. If this is the case for you, as your income grows your spending will grow and you will still be in debt. Or, if you cut expenses and do not focus on earning any more money you run the risk of cutting out anything exciting and living a boring life.
I believe it is all about your priorities. Decide what your goals are, and then determine which of these approaches will help you best reach those goals. My guess is that a combination of both approaches will help you best meet those goals!