There have been some comments on different personal finance weblogs that too much writing is devoted to savings and frugal living and not enough to increasing income. While I agree increasing income is important, frugal living is often the more important component. People should achieve a frugal lifestyle (preferably first:-) or an increase in income may not be sufficient to help their financial situation.Here are two stories about different families which have been told to me.
Two families – One military and one civilian.
When my wife was a child, her family lived across the street from a civilian family. Both families had two children. It was clear the civilian family was having a difficult time financially. Often, they would run out of money for groceries at the end of the month.
My father-in-law was an Air Force captain and they had a modest military income. However, they helped their civilian neighbors by passing along their children’s clothing after my wife and her brother outgrew them.
My in-laws became good friends with the other family. One day, the civilian wife mentioned that she didn’t know how a family of four could live on their income and told my mother-in-law a number. Imagine my mother-in-law’s surprise when the number was higher than her own family’s income.
Frugal Living -1 Higher Income – 0
Two Families – One dual income, no kids (DINKs) and one with children
A colleague of mine shared a story about her daughter and son-in-law. They were renting a house and saving money to buy one. They lived near a family with children. Based on their jobs, my friend’s daughter knew that she and her husband had higher salaries. As DINKs, they also assumed they had lower expenses than a family with children.
Within a couple years, the family with children bought a house and moved out of the neighborhood. My friend’s daughter couldn’t believe that the family had purchased a house first. My colleague observed that the family was likely saving more, since her daughter regularly spent money on eating out, entertainment and customizing their cars and motorcycle.
Frugal Living -2 Higher Income – 0
Of course, these stories are not necessarily representative. However, the point is that frugal living always helps ones financial situation. Depending on one’s spending habits, higher income may or may not be of sufficient help to one’s financial situation.
Photo Credit: morgueFile.com, Michael Connors
This is not financial advice. Please consult a professional advisor.
Copyright © 2006 Achievement Catalyst, LLC
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6 comments:
The key is to not allow expenditure to expand as fast as income does. That's certainly one of my "secrets". But for someone having a hard time making ends meet, cutting expenditure probably won't work miracles. Either they really don't have enough income or it is hard to accept a lower level of lifestyle so the chances they will stick with a MUCH more frugal standard of living are not high (like crash diets).
Moom,
Thanks for your comment. Great points.
I like the idea of increasing spending at a lower rate than the income increase. That is always a win.
Agree that in some cases, the income is not sufficient, no matter what is done. For those cases, the solution is likely an AND - learning to be frugal and increasing income.
I earn my state minimum wage and have no marketable skills and no hope of buying a home. While I hold no illusions that buying a home is a ticket to vast appreciation and wealth, I believe it IS a crucial defensive action for chronic low earners like myself. For many of us, buying a home (or not) is the difference between being able to enjoy a modest retirement and never being able to retire at all.
Those who cannot buy a home are unable to lock in or even stabilize their housing costs and have no long-term economic security.l
Terry,
Thanks for your comments and sharing your thoughts. You make a good point about a benefit of home ownership.
I totally agree with both sides of the argument. Frugal living is great and does save money, but in many instances people need more income as well to reach their goals. I know I have increased mine with contract and freelance work and it's really paying off for us.
Frugal Place,
Thanks for your comment.
I think we both agree that it is an AND - i.e. frugal living and increasing income. Long term, most people need to have both parts in place to be financially successful. From what I've observed, it seems to be more important to master frugal living.
I enjoyed reading your articles on The Frugal Place.
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