Increasing Income vs. Lowering Expenses – Which is Better?

In our community of financially savvy people, you’d think that it would be easy to agree on certain things. Nothing is farther from the truth. Take for example the discussion on increasing income vs lowering expenses.

It seems we can’t agree on which is better. So to end the discussion once and for all, here is my take on it!

Increase the Gap

In the end, what we are trying to do is to increase the gap between income and expenses.

The gap is what we refer to as our savings, often expressed as a percentage and then called the savings rate. This savings rate indicates how soon you will be able to pull the plug and call yourself financially free.

You can increase the gap in two ways. The first is to increase your income. The second is to lower your expenses.

Increasing Income

You can increase your income in a lot of different ways. My favourite one is to ask your boss for a raise. Seriously. Stop reading Fire The Boss if you’re not ready to ask for a raise. It’s not hard, your boss will not hate you for it. The worst that can happen is they say no and you go back to your job.

The second option is a little more rigorous. Let’s assume you talked to your boss about a raise and they kept saying no. But you know that your market value is more than what you earn now. Then apply for new jobs! It’s very nice to be job hunting when you still have a job. You have the option to say no and wait for the right opportunity because there’s nothing to lose!

Of course, there are more options to increase your income than just to get a raise at your job. You could start a side hustle for example. Side hustles can provide income besides your regular job, allowing you to work (and earn) as little or as much as you’d want.

Other ways to generate income are a little bit harder to get into but can be very rewarding once they’re up-and-running. You can think of writing books and getting royalties or creating mobile apps with an advertising or freemium business model behind it.

There are no limits to how much you can earn. Try to make the most out of your time, by getting paid what you’re worth!

Lowering Expenses

Lowering your expenses is a sure way to increase the gap. There are plenty opportunities to spend less on almost everything, my favourite ones are these:

  • Cheaper housing (rent a smaller home, refinance your mortgage, sell and move to cheaper home)
  • Cheaper (or no) car
  • Save on groceries by making meal plans and stop wasting food
  • Save money by quitting subscriptions

Which savings you choose to pursue doesn’t matter. Lowering your expenses is a sure way to become financially independent really quickly! The reason is that this knife cuts both ways. By lowering your expenses, you’ll be able to save more and be independent quicker. Also, if you spend less, you need less capital to live on, which means you get there faster.

While lowering your expenses is not unlimited, it actually has a dual effect on your timeline to FI.

Which is Better?

So which of the two is better? What should you focus on?

Obviously, you can’t do everything at once. That means you have to focus on a few things and be good at them. You don’t have to choose between increasing your income and lowering your expenses, but you also can’t do all of the suggestions at once.

Lowering your expenses might be one of the best ways to start though. It works in two ways, which is great, however, there is limited potential here. Your expenses can’t go below zero.

On the income side of things, there really is no limit. Although chances are small, you could potentially build the next Amazon and build yourself a nice 140 billion dollar empire. Just make sure you don’t divorce during that time.

Your income potential is unlimited, that’s why I argue that focusing on income is more important than focusing on spending, at least once you have laid a solid base and aren’t spending too much on useless stuff.

Which one would you rather focus on? Where do you stand on increasing income vs lowering expenses?

6 thoughts on “Increasing Income vs. Lowering Expenses – Which is Better?”

  1. That’s a tough one. Increasing income mostly requires doing extra work or growing to new levels. Lowering expenses means you need less and you can save more. So I would go for lowering expenses for the long run.

    • But lowering expenses also requires work at some point. Once the easy bits are cut out of your expense side it does take some time and effort to get lower and as B said, you can’t get below zero. Besides, it’s nice to cut your costs to save money but they will either come back once you “retire” (if you considered a higher cost of living to retire) or you keep them low but then you must keep working for it.

  2. Mr! You are right that the long run benefits tremendously from having lower expenses. It will work not only during your accumulation years but also for the rest of your life! However, when accumulating, increasing income really does help. Don’t pass on opportunities to earn more just because you focus on the cost side of things.

  3. Hi B
    The ideal would be doing both, boosting income while reducing costs, but you‘re completely right, one can not do everything (at the same time). As for us, my wife and I had a relatively steady income over the last 10 years. When we get pay rises we tend to reduce our work pensa (in my case steadily from 100 % to currently 80%, my wife reduced as well, from 80 % to 50 %). We have two little kids and want to have as much time with our family as possible and make our path towards FI as enjoyable as possible. So, with our active income stable, our only lever to increase savings rate and being able to put money to work is constantly optimising our cost structure. That’s extremely powerful and a very rewarding process. But you are right, cutting costs has it‘s limits. But for us, it worked out fine so far, our savings rate is comfortably above 50 % and we are able to put money to work, generating passive income which supports our savings rate and wealth building process. My wife and I set the goal to achieve FI by end 2024.
    Financial Shaper

  4. A very quick win is to cut spending on useless stuff first. Doesn’t take much time and doesn’t really decrease your quality of life.

    Afterwards increase your income. If you do it the other way around, I think it’s very likely that your spending will increase in line with your increase in income.