Should You Spend Less or Earn More to Increase Your Leftover Money?
November 2, 2018
For most of us, we’d probably like to have a little more of it—leftover money that is.
Your leftover money is money you can spend or save however you please. It’s the amount left over after you take your income and pay all your necessary expenses. Depending on your situation, that figure could be a couple hundred dollars a month to thousands.
So how to pump up this amount? Generally, when it comes to money, you have two levers you can pull: spending and earning.
By focusing on both sides of the equation—decreasing spending and increasing earning—you can help maximize the difference between the two.
Let’s start with what you can do to spend less.
Learn from your journey
Increasing your leftover money is impossible if you match higher earnings with more expenses.
If you get a raise then buy a new car that costs $200 more per month, that higher monthly payment could wipe out the extra income. This is what is known as lifestyle creep.
Therefore, if you want to have a meaningful impact on your finances, consider which savings strategies you could implement into your day-to-day life. It could help to make an inventory of all your expenses, see what you can cut or reduce, and then move on to finding ways to save costs.
Here are a few ideas and money hacks to consider:
- Download a coupon app and look for savings before checking out.
- Use cash-back sites when shopping online.
- Buy “used” gift cards for less than their face value.
- Listen to personal finance podcasts to increase your money knowledge.
- Switch to a no-account-fee bank account.
- Build your credit, which could help you get lower insurance premiums and lower rates on loans.
- Prioritizing spending that matches your values.
- Learn how to avoid overspending.
- Limit the amount of social media you consume
- Move to a lower-cost location or take a roommate
- Get rid of one big expense if you can, like a car
Implementing frugal changes into your life can also literally be more valuable than increasing your income.
For example, if you figure out how to decrease your spending by $100 each month, you’ll have an extra $100 to spend or save as you wish. However, if you earn an extra $100, you’ll have less than $100 after taxes are taken out.
There are also a few problems with focusing solely on saving.
The first is that there’s a limit to how much you can save. Even if you go to extreme lengths to cut back, you’ll still have to spend money on basic necessities like food and housing.
Second, cutting back can be physically and psychologically challenging. You may be able to cut back for a few months, and then decide you’d rather save less and have a more pleasant life now. Or, some people wind up seesawing back and forth between extreme savings and overspending—a kind of yo-yo diet with money.
Figuring out how to increase your overall income while leading a frugal lifestyle could help you avoid the teeter-totter. If you can keep it up, you may be able to watch your discretionary income substantially increase as your overall income climbs.
As with lowering your expenditures, there are many ways to go about it:
- Find a higher-paying job.
- Negotiate a raise at your current job.
- Continue your education and then use your new skills to help you negotiate or change jobs.
- Make money selling your stuff (although recognize this is a short-term increase).
- Start a side hustle
- Look into passive income streams
There’s no best path, a combination of several may even be key. Or, you may want to start with a side hustle, which could then turn into a business or provide enough income to pay for classes or certification courses.
Focus on both sides
If you’re trying to decide between focusing on spending less or earning more you may be stuck in a false dilemma.
While we see a value in focusing on money-saving lifestyle changes first, there isn’t an either/or answer—try to do both.
Louis DeNicola is a freelance personal finance writer and credit enthusiast. You can find him on Twitter @is_lou.