I was asked by a reader for a money tip for the new year.  I would typically give the save, invest, repeat spiel, but I thought I would give a tip that is even more fundamental.

If I was to give a personal finance tip for the new year, it would be about the way that we think about money.  The predominate thought in the personal finance blog world is to “spend less than you earn.”  Although I believe deeply in that concept, I think that a better way to phrase it is to “earn more than you spend.”  Simply rearranging the phrase creates a paradigm shift from one of scarcity to one of abundance.

Providing that expenses are kept in control, focusing on increasing your income is many times more powerful than reducing expenses.  Expenses can only be reduced so far (to $0), but earned income is potentially unlimited.  I know, this is strange coming from a frugal guy, but it’s really common sense and can make a big difference in the way that you think about money.

At the beginning of this year, I was very concerned about my wife leaving for maternity as she made over 50% of our household income and maternity benefits only cover 50% of her income.  Instead of dwelling on that fact however, I focused my efforts on making more income.  As a result, we now have the luxury of choice.  That is, instead of going back full time after the 1 year maternity benefits, my wife can go back part time and we still would be comfortable.

So focus on making more income this coming year, you’ll be surprised at what can happen once you set your mind to it.

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A dollar saved is a dollar in the pocket, but a dollar earned is 50 cents in the pocket after taxes.

I am often surprised at the belief that one should not make more because it would result in paying more taxes. Paying more taxes means you are making more money!

Al, your logic is only useful if you already have piles of money and never actually have to “earn” any of it as “income”.

Most of us have to earn, as income, the dollars that we save, so it’s already taxed anyway.

While I agree what you said is good in theory (or mostly for people with bright futures), some people are at their maximum in terms of earning power. To further complicate things, thousands of canadians are losing their high paying auto jobs in southwestern ontario… Some of them do not have highschool diplomas… They would likely laugh at this post (if they could read it).

This brings to mind a common phrase in the energy conservation world … It’s easier to use less energy than it is to create more

FT: Are you suggesting looking at the earned part of the equation through alternate methods (i.e. this web site in your case) or simply increasing your pay through job training, advancement etc.?

Geez….seems like common sense doesn’t it? In reality most people have not figured this out. The little economic downturn will reset priorities.

I think that one of the easiest ways that most people could reduce expenses would be to drive a less expensive vehicle. At the end of the day all that a vehicle does is get you from point A to B. I have a baby and we drive a 2007 VW Golf ($12,900 new or $260/mth leased for 48 months @ 25K year). I don’t feel like we have had to make too many sacrifices at all. When he gets older and/or has a sibling we intend on keeping our cars small and cheap and purchasing a small utility trailer to haul cargo when needed. I predict that we’ll need it less than 1% of the time (camping, etc). I see so many huge pick-ups on the road. This just seems like such a waste to me. If you own a pickup that is not dented and full of scratches, chances are that you could have gotten away with a much small and frugal car.

You Americans are totally obessed with “money” Why not relax and give yourself a break from thinking about it over Christmas.

There’s much more to life than “money” Half the world is starving. We in the West have so much and we seldom appreciate it.

My daughter did some charity work in India and she came across whole families living in railway stations as they have no home. People with serious but curable diseases going untreated as they could not afford medical care!

.Consumerism is the curse of the 21st century!

“A dollar saved is a dollar in the pocket, but a dollar earned is 50 cents in the pocket after taxes.”

Yes, but what is a dollar spent that wasn’t earned? If it was on a credit card, it’s -$1.25 or more.

I’ve never been a fan of unions, and in fact, the high paying auto jobs are the same pay whether it’s union or not. It’s the union benefits, perks, and healthcare that make it a gravy train.

Linda, the majority of the readers here are Canadian. I don’t think anyone’s talking about consumerism here. Retiring early is probably on the minds of most.

Great comment!

I have four small children and am often asked how I can afford them. I respond, “Decide first how many children you want to have, then decide on your income”.

Doesn’t the statement “Earn more than you spend” define the current economic downturn? I believe something like “Understand your money” is more fundamental.

If you don’t understand your money you end up with a high paying job but spending too much. You come to only care about the monthly paycheck. Does my pay this month cover my 2 car loans, my 0% first year mortgage, my investment accounts? I believe one of the posts about an episode of Oprah highlights this.

This being said, most of us reading these posts are the ones that are trying to understand our money better.

I think the trick is to earn more like you have said because as frugal as I am, my income just is not taking me to where I want to be.

Great concept….if you had a good upbringing, came from upper middle class parents and have a University degree…but for low-income and the working classes (most people do not earn six figure incomes) and those of limited means, to increase there income this is of little use….

Usually to make money you have to spend money or have money….If you have no money to spend, no family to turn to borrow or get the money, or no bank will lend you money to invest in a business, buy that rental property, purchase that large pool of dividend paying stocks or money to take off work and go back to school….your ways of increasing income are limited…..

I am not saying its impossible, its just a lot harder, and most things that involve earning more income involve taking on extra risk (new business, real estate), and a lot of extra work that the average person may not have the discipline or the desire to do. This is not a flaw just a reality….so it is much easier for most people to concentrate on keeping control of spending, than concentrating on earning more money, even though in the long run you are right, it would probably be to more beneficial to focus on earning more money than saving more money….but that is easier said than done….

I like this way of looking at it though and will take this expression of “Earn More than You Spend” as something to think about in the new year…


I’m not sure how you see income taxes as being a problem for those with a bunch of money already who don’t have earnings. Please explain.

I work and earn my salary, but I only get to keep part of it (agreed FT, 40% is more accurate, but it sure feels like half.) When I save a dollar by reducing spending, it’s all mine. The point is that the govt makes it more efficient to increase savings by reducing spending than to try to earn more. This is especially true for those in the higher tax brackets, though they’re less likely to need to worry at all.

Al, I think we can all agree that reducing spending/expenses is the best way. However, there’s a point where you can’t do that anymore without sacrificing your lifestyle (or that of your children). At that point, earning more money is obviously the option. Or selling a kidney.

I will concede that the vast majority of people think foremost of earning more rather than spending less.

Gee, I don’t understand why there’s controversy over this one. I’ve spent the last 4 years cutting expenses because the company I work for is on a salary freeze. And yes, at a point, I’m living on less (since everything now costs more), and making more money at this point is really the only way to go. You can only cut so much before the family starts to suffer.
That’s certainly my goal for 2009, to bring in more money. There are so many ways to do this, too. I’m personally right now sending out CVs to get a better paying job, I’m looking at starting a side Internet business. With the web, you don’t need a University degree – just a good idea and a desire to put in the work. Those are just 2 ways of increasing income.
And like FT says, I have no problem paying more taxes if it means I’m making more money!

For some of us there is a cap on earning too much. I work in a field where I bill a fee for time spent working on a few client’s behalf. I can easily put more time in and generate more income within reason.

However when I look at the math… working 10 more hours / week for $X more. Its often not worth it. At my bracket the CRA wants 45%. The sacrifice of time lost with my wife in kids in exchange for a few more dollars after-tax isn’t worth it.

One of the things our tax system could learn from the US is the taxation of family income instead of individual income.

On the expense side, I know FTs discussed this a couple months ago – I track my expenses in quicken and use all the easy reports to analyze my spending patterns. Its a great tool to uncover all the areas where we can cut back. In the last 3 years I’ve been able to cut non-mortgage / non-SM interest expense in about half, and finally it helps me argue with my wife about her spending patterns :)

Seems obvious but yet people spend in such a bad manner. You can only spend what you make, everything else will just add to unwanted debt.

we have to earn $1.46 to earn one extra dollar of net income. Saving one dollar of after tax income is the equivalent of saving $1.46 before tax. It works out the same in the end. It is just a matter of how you prefer to frame it.

There was a study done this year about the way kids think about money. It was a ‘rich kids’ vs. ‘poor kids’ study. What the researchers found was that the rich kids had basically no limitations on what they thought they could or should earn as adults. The poor kids, however, basically all thought they shouldn’t have any more than they required or needed.

Basically, if you don’t think like a wealthy or rich person, or think you should or could be rich and wealthy, then you probably never will be.

@mjw2000 and Brandon: exactly the point of the aforementioned study. Get rid of the limitations:
“…for low-income and the working classes…and those of limited means, to increase there income this is of little use…”;
“…some people are at their maximum in terms of earning power.”

Both those statements are false. Everyone with a job is of “the working class”; everyone has “limited means” (yes, even Buffet). And WHY?!? would increasing income EVER be “of little use” to ANYONE?!?

I am at the top of my salary at my job, want to know my secret of how I increased my “earning power”? Get ready…it’s called a “Second Job”! TAH DAH! I work some extra days throughout the year and EARN an extra $5000 (net). Hey, wow! My earning power just increased! And $5000 is of much use to me of working class and limited means. And with that extra cash I then turn around and, using my brain (of limited means), I try to make that money work for me (i.e. dividend stocks), which then ends up making me even more money “of little use”.

Earning MORE is NEVER bad! You just have to know how to handle the extra! Ross Perot (billionaire) once got his income tax down to 1%! Think he ever thought earning more was a burden or of little use? Doubt it (see first paragraph).

@Dan: I know a family of eight (plus two parents). The father is a multi-millionaire. Why? It wasn’t that he wanted to be rich, but he knew he was going to have a BIG family so he knew he had to make a lot of money to support them. By the time they all grew up and left home he didn’t downsize himself to a minimum wage job but just kept on making making his millions but no longer with eight dependents to drain the coffers!

@Linda: I’m sure it says somewhere that money is the root of all evil. Welcome to YOUR Capitalist society! Don’t like it, move to Cuba.

wow. simple common sense that so many still dont understand. Hopefully this can atleast change one or two people onto greater prosperity.And to those talking about tax implications, do you just earn and then stuff your cash in a mattress? If you are investing that money or saving into government approved tax sheltered savings accounts, you can reduce the amount of taxes you pay at the end of the year.

People should understand that life is a business and when you have a very large deficit then you are killing yourself and shortening your life. Finance is a basic commodity in life today.

Save money!!


Couple of things:
1. When FT talks about earning more than you spend he doesn’t talk about sticking with one income source- your job. Most of affluent people earn money every moment of their life. So if it means to you to run a blog additionally to your full time pay cheque let it be. There 1001 ways to make money, we just too lazy to lift up our buts from the couch. It’s not what you do during the work hours it’s what you do after work matters.
2. Controlled spending are essential to your financial health. If you earn a lot of money but spend it all and even more right after you got your pay cheque you not gonna get too far. It doesn’t matter how much you earn it important how you spend. Did you ask yourself a question where all these corporate fraudsters are coming from? I bet you majority of them from the families where spending habits were welcome.
Summary: if you would like to become a financially independent at some point in your life your spending should remain on the same level when your earning should go up. Don’t take literally “spending should remain on the same level” it could be percentage wise to the income, what every definition is easier for you.


Obviously you’ve never met a family living paycheque to paycheque…

Are you telling me an uneducated single working mother with three children should give up her free time just to earn an extra 5 grand on a second job that pays minimum wage?

It’s not going to happen. Most people in this situation will have their priorities set straight and she’ll put her family first. She needs to raise her kids, which will consume all of her free time. For her, earning more is not an option. Reductions in spending will come fast and early. Moving to a smaller house is likely to follow. The only way someone like this will get a second job is when her back is to the wall.

And of course, the children will be getting jobs and maxing their hours as soon as they are of legal age, which will begin to point them into the same direction as their mother.


I was raised by a single mother that lived paycheque to paycheque. Some people definitely don’t have the freedom to seek alternate forms of income or to leap-frog to different companies in search of better paying jobs.

But not everyone is that restricted. Most of us have the option to seek out better careers or try to be creative with income through second jobs. I know too many people that are stuck in a rut, working a job that they hate for very little pay. No college education? No high school diploma? It doesn’t matter, you always have options. You just need to step out of your comfort zone and be proactive about it.

I just want to express my respect and full support to your post.

It may be just moving a few words around, but focusing on earning more as a way to increase financial security is a powerful compliment to living a frugal life and keeping spending down. I look at my family finances in the same way as I look at my business: An extra dollar of revenue without any associated expenses is pure profit. The more dollars I can generate like this, the more prosperous my company (and my family) is. An extra $100 per month doesn’t seem like a lot, but when it’s pure profit and goes in to the bank as savings, it can make a dramatic difference in your family’s saving rate.

@Brandon: again, excuses for one’s situation. FT’s post is trying to show the value of a ‘glass half full’ approach to personal finances, regardless of who or what you are. Instead of always looking at how much is going out, focus on how much is coming in.

Single mother, no education, three kids = no options for earning more? Let’s explore options shall we?

Government funded education programs; paper/flyer route; collect cans/bottles; baby-sit; or even…gasp!…get a different job that pays more!

It’s all about mind set. Yes, there is also reality. But the thing is, you have to START somewhere! Don’t just flap your arms and huff in defeat or you truly won’t earn any more. No one said life, or making money, was easy.

I was raised by a single mother as well. Let me tell you, I definitely respect her now that I’m older because she really busted her a$$ to provide for her kids and create her own success (she bought a house and paid it off in ONE YEAR!).

It can be done and it is done, every single day, all over the world.

I don’t think I’ve seen a more complete list. I agree with your charity suggestion. There are reports that charities are really suffering with the current economic conditions. Let’s do our best to help the ones we can.


A paper route and collecting cans and bottles will generate very little income.

“or even…gasp!…get a different job that pays more! ”

This is exactly what I hate about MSN articles talking about saving money. They offer vague and often useless solutions to problems. Need to save money? Stop driving two cars and only drive one! So simple!!

I’m not arguing that it isn’t possible to make more money, I’m arguing that you will need to find a balance inbetween work and family and that will limit your willingness to get a second job.

FT, you have a kid on the way, right? Imagine if you were flipping burgers while your wife is in labour… or you can’t go to school plays, birthdays and other events because you have to make an extra buck. A logical person in this situation will START somewhere by cutting expenses before resorting to a second job.


“I’m not arguing that it isn’t possible to make more money, I’m arguing that you will need to find a balance inbetween work and family and that will limit your willingness to get a second job.”

Shall we dissect that paragraph:

1. “I’m not arguing that it isn’t possible to make more money” — then don’t argue, offer solutions instead of “I hate…” comments.

2. “…you will need to find a balance inbetween work and family…” — that’s true. There are only so many hours in the day. A single mother of three has to provide not only monetary support for her family but also ‘in-person’ support. But, there are also times in life when a person has to choose the best path for their family and not themselves (ie what is best for the children). It’s called making sacrifices. Mother is the hardest job in the world.

3. “…and that will limit your willingness to get a second job.” — again, it’s all about the mindset. As you say, “LIMIT YOUR WILLingness”. How much strength of character does that mother (or anyone else wanting to make extra money) have? How much will power do they have to actually overcome those LIMITS (whatever they may be)?

No, paper routes and collecting cans will not rake in the millions, but if you want to make extra money, then you have to research and asses the avenues available to you. If you are in the same situation as your example family, then you have to realize that your ‘extra income’ stream won’t double your regular paycheque. But think differently: if the paper route brings in an extra 5% of regular income per month…great! I’d like 5% more money a month too! Double that with cutting costs: add 2.5% more income; cut 2.5% expenses = same result with only HALF the work as initially forecasted!

Single mother with no education and three kids doesn’t have the same money making options as a Harvard law grad. It all comes down to choices. Our past choices determine our present and probable future. If we don’t deal with the problem at hand then we have to deal with the consequences. As time goes on, those consequences compound (like savings).

“A logical person in this situation will START somewhere by cutting expenses before resorting to a second job.” That’s fuzzy logic. My kind of logical person would feel like maybe flipping burgers isn’t the best way to support his/her future family and would go about doing whatever it took to secure a better financial base — raising the standard (more income) rather than lowering it (cutting costs). Endure the short-term pain to avoid the long-term pain.

After writing all that, reality has to play a part in all of this. Not everyone has the mentality or fortitude to be a “middle-class” citizen (I seriously wish I didn’t!). Nature hates a void, they say. There will always be poor people. Unfortunately, there looks to be a whole lot more coming your way in 2009!

The Plummet of ’08 is a great example. The majority of people only see red (I know I’m seeing a LOT of it!). But there are plenty of people caught in the plummet who are also looking for opportunities. They will be the ones who are further ahead (making more money) in five years, not the ones who only cut costs to “save” money today.

Warm greetings! It seems like everyone has a different opinion about this, but doesn’t it seem that these two concepts are on a continuum, or somehow interlinked? For example, if your goal is to save money, and if your income is a constant, then you need to figure out how to reduce expenses somehow in order to have excess money to save. But if you can’t reduce expenses or don’t want to change your spending habits, then the only way one can save is to increase one’s income. Depending on one’s situation one or both of these scenarios may not be possible, but with time, conscious evaluation and effort, I think everyone can figure out how to save or save more by using one, or a combination of the two principles mentioned in this article, even if the shifts in either instance correlate to minor changes. For the most part, past generations were able to some how save for rainy days. Even though my grandparents were poor by definition, struggling with their farm and paying bills, they lived minimalistically, were frugal, took on extra work when needed, and somehow were able to provide for their family through cutting costs sometimes and from taking on extra, non-farming work other times. Everyone’s scenarios are different, of course, and times definitely are different, but I think the “earn more than you spend” and the “spend less than you earn” are equally valid points. They may not always work at every step of the way for everyone, but overall, both can have an positive impact on a families ability to save in the long run.

Hey FT, looks like some “Killing Sacred Cows” stuck with you. Worked on me too, I saw it from the title on the feed reader (no article required :)

This change of phrase is right on!

@Al:When I save a dollar by reducing spending, it’s all mine.

This is the “downward” mentality of money. This is the Latte Factor school of thought. This is the guy who’s tagline is “Live Rich, Finish Rich”, but goodness don’t spend your money. How am I supposed to “live rich” if I don’t spend my money? Why do I want to die with money in the bank?

The Latter Factor has a simple fundamental problem, quality of life. Bach gives you reasons not to drink the latte so that you can have a bunch of money in 40 years. However, he never “replaces” the latte. You don’t “make your own” or “chip in for a machine at work”, you just don’t drink lattes. You drop your quality of life to meet future goals, you don’t drink lattes from 25 to 65 so that you can drink as many lattes as you want from 65 to 85. Does that sound like the great life?

But that’s not what we want to do.

We want to maintain and improve our style of living and that almost inevitably takes more money. Conscientious frugality involves cutting those “expenses” that fail to provide value, it’s not about wantonly chopping expenses for the pride of having money in bank.

Yes, most people can chop expenses. Yes, most people can even reduce expenses while maintaining their standard of living. But each consecutive time you trim the fat, there’s less fat to trim. On the other side, there is no known ceiling for what one person can earn. Whatever you make per hour, there’s someone making twice that much money.

So for people who want to fix their finances next year, go ahead and trim a little. But start planning to grow, to work the problem from both sides. At some point, it’s way easier to try to make $100/month than it is to trim $50/month.

@ Gates VP: “You drop your quality of life to meet future goals, you don’t drink lattes from 25 to 65 so that you can drink as many lattes as you want from 65 to 85.”

I’d like to break the fabled Latte Factor ever further than you have done. If you follow the LF you will not drink one latte in your life. Why? Because whilst you are denying your taste buds between the ages of 25-65 (or more!), you are spoiling your savings account.

BUT…you are constructing your savings and retirement plan based upon a non-latte life. You are not saving or earmarking any money for future lattes. Your “future goals” contain no lattes, just as your present goals contain zero lattes. You will go your whole life, 25-85, without ever having tasted a latte.

In conclusion, the Latte Factor diminishes the quality of ALL stages of your life.

So how are you doing so far? Have you increased your income ? Cut your expenses ? or better both!

Personally I’ve been operating a part-time business on top of my full-time job, way easier and more profitable than cutting that extra latte! (Although I got to admit I’m trying to change that latte for a cup of tea…)

I think it is normal for an average human being to first start saving by cutting expenses before looking for a ways to increase what he earns. However, this is a great way to look at this concept as it is truly a motivator for someone to not only save but also increase their own net worth!

Spend less than you earn. Earn more than you spend. They say the same thing but interesting to read them.