I don’t know why I hadn’t asked AI the age old question in personal finance around spending less than you earn or earning more than you spend. Here is the answer that AI spat out.
Both spending less than you earn and earning more than you spend are essential strategies for building financial security, but they serve different purposes. Here’s a breakdown of each approach:
- Spending Less Than You Earn
Advantages:
Immediate financial control: By cutting back on discretionary spending, you can immediately increase your savings rate without needing additional income.
Financial discipline: It helps build strong habits around budgeting and prioritizing needs over wants.
More savings: Reducing expenses means you can save more, invest more, and reach financial goals (like retirement or debt repayment) faster.
Limitations:
Only scalable to a point: There’s a limit to how much you can cut. Basic living expenses (housing, food, healthcare) are essential, so reducing them has diminishing returns. - Earning More Than You Spend
Advantages:
Unlimited potential: There’s theoretically no cap on how much you can increase your income, whether through promotions, new job opportunities, side hustles, or passive income streams.
Flexibility in spending: Higher earnings allow you to maintain or even increase your standard of living while still saving more.
More resources for growth: Increased earnings mean more money to invest, which can exponentially grow your wealth through compound interest and investments.
Limitations:
Lifestyle inflation: If you’re not careful, earning more can lead to lifestyle creep, where your spending increases in tandem with your income.
Uncertain results: Increasing income isn’t always quick or guaranteed, and it may involve additional work, stress, or time commitments.
Which Is Better?
In an ideal scenario, a combination of both approaches is the best strategy:
Start by spending less than you earn: Focus on reducing unnecessary expenses to free up money for savings and investments. This provides immediate financial relief and builds a solid foundation of financial discipline.
Then focus on earning more: Look for ways to increase your income, whether through a side hustle, negotiating a raise, or finding a higher-paying job. This allows you to achieve bigger financial goals and enjoy a more flexible lifestyle without jeopardizing your savings.
In short, spending less than you earn helps you maintain financial discipline, while earning more provides greater opportunities for growth. Both are important for long-term financial success.
I really liked the answer AI gave here and it seems to me that AI is telling us that it’s an evolutionary process. You start by spending less than you earn initially then as your financial prowess evolves, you should focus on earning more than you spend.
Share The Wealth
Do you think AI finally settles the question? Let me know in the comments below!