by Jim
Yesterday I read something over at Budgets Are Sexy that really resonated with me. J. Money read an article from Mr. Money Mustache (a pretty famous blog that I follow). In this article MMM said:
“The most important thing to note is that cutting your spending rate is much more powerful than increasing your income. The reason is that every permanent drop in your spending has a double effect: it increases the amount of money you have left over to save each month, and it permanently decreases the amount you’ll need every month for the rest of your life.”
I still stick to my guns in saying the easiest way to make fifty dollars is to save fifty dollars. I had this mantra since I began my coupon journey about five years ago. This was a time when I went from a single man living alone to having a built in family. Feeding three people was an eye opener to say the least, especially when you were allotting yourself about $100 per month for food before. Remember I was in the food industry, and usually always fed myself at work.
What this article did for me was realize that it really isn’t my income that is a problem here. I have been making it work, and know full well that we could live on the income we do have. It is really all about eliminating all the unnecessary monthly expenses.
The biggest being DEBT.
Now I am not saying that I won’t challenge the other expenses, but debt is the biggest. I have been paying anywhere from $800 to $1,000 every month for the last four and a half years, just on debt!
What if I was using this amount to put away for savings and retirement? I would be in a totally different situation than I am today.
This is also not saying that I will not be looking for opportunities to increase my income. Because let’s be honest the two go hand in hand. If I increase my income it will be a much faster route to get out of debt and start becoming the provider that my family knows I am.
So for the month of July I will be reviewing more of my expenses and seeing ways to cut them out of my life. Who’s with me?
I think you’re justifying things just a bit. From the reports you give, you’re not just living paycheck-to-paycheck, but barely living paycheck-to-paycheck. You can reduce costs for sure, but there’s a minimum standard you have to keep, especially since you have a child, and children get more expensive the older they get, up to and including being sent to college.
Removing debt is a big help, for sure, but living frugally isn’t going to set you up for life if your current income just barely pays the bills as it is. All it will take is one medical or housing emergency to completely wipe out whatever progress you’ve made, and the best way to insure against it is to make sure you have a comfortable safety net, which generally means you have to make enough money to put a significant amount away.
I totally disagree with the above.
Jim, if you haven’t checked out what Adam Baker and his wife along with a child did to get to where they wanted to be regarding debt, income ,etc. I think it would be good for you to read his story. His goals ( similar to what you wrote in this post ) were very much in line with your statements. His and his family’s story is at his blog called Man versus Debt. I really think you will enjoy it.
Jim is very familiar with Man vs Debt
Jim is very very familiar with Man vs. debt. Lol
I am not saying this will set us up for life, but it made me realize that the income I bring can be enough if we didn’t have this hurdle of debt. Once the debt is gone, $800 is a good percentage of my income that can be set away for longer term goals.
A couple of thoughts. Getting rid of the debt is obviously key – and being frugal will help that – but even as you note in your posting – what if you were putting that to savings instead? So even if you got out of debt you would still need to maintain the income you have/make more. As you continue your journey I think you and your wife will need to look at how you got in debt – what choices you make got you there. And then how to avoid that behavior in the future. Cutting unnecessary expenses in always good but many expenses can at best be managed and not eliminated (electricity usage for example). There has to be a balancing act between cutting expenses and finding more ways to make money. Best of luck
You are very right about this SAK. The balancing act is the key to seeing long term goals.
I’ve been battling the debt monster for 3.5 years now. I have cut expenses to the bone, but the only way to break up the log jam has been to increase income and throw it directly at the debt. Cutting expenses is, of course, essential. But bringing in even a couple hundred dollars a month extra will build the momentum and speed the process more than you can imagine. Getting rid of debt is a job and you have to be willing to do whatever it takes to get rid of it as fast as you can. When it’s gone, then you have the luxury of reevaluating and worrying less about a bigger income. Good luck!
Thank you for this post Sarah. You are very right that once it is gone that I can reevaluate things. I have no problems with adding a couple hundred dollars, but as I have stated from the beginning, there are certain stipulations that have to be met in order for me to take on extra work.
I am a big one for cutting expenses to the bone too. My husband and I have always done that. We lived on a very small, debt-free income with our family of four children during the first years of our marriage.
I read a lot of PR blogs, and the one thing a lot of people disagree on is taking on lots of extra work, especially if you have a young family. Many disagree with the Dave Ramsey approach–that you really need to get that pizza delivery job and go all-out gazelle intense in ridding yourself of debt. (Of course, this will be what DR recommends. Otherwise, he won’t be able to demonstrate quick results for those who use his program!) Others want to take a slower approach, still keeping their eye on the debt-free prize, while maintaining family life. (After all, you will never get those years back.)
Is it better to live a modest lifestyle with moderate debt that Jim has or to be looking down the mountain of debt that our other bloggers here have? (ie. the education trap)
This is exactly what it is about FF. I do still have the “gazelle intensity,” it might not be as strong as some of the other people. But it is still there. It hurts how bad I would want to get out of debt, but at what cost? If I can’t live the lifestyle that I believe my family would like and be around for them… it would make no sense.
Every single month after my paycheck comes in, I swear this up and down. I vow to do it. I say “okay, I am only going to eat what I already have and not spend anything else I don’t have to spend. Hey, it isn’t anyone’s birthday, so there’s some money saved right there… “ooooh, look at all the $$ I have. Lots! I am just going to let it sit and not touch it.”
And then… and then … I do dumb things. I make the ENORMOUS mistake of “popping into Target” or Marshall’s or whatever and I buy things I don’t need. Boom. $50. Just like that. $25. $50. Another $50 for gas. Urgh.
And then the end of the month rolls around and I have like $100 to last the whole last week.
I did sooooooooo well for a really long time. I was throwing mountains of cash at my debt but then ending up with no $ at the end of the month. I realized I wasn’t doing myself any favors by leaving me with no cash to pay for food or gas.
I don’t know what happened. I am off track again.
But just this morning as I laid in bed before I got up, I thought, think about what I could do if I didn’t have to spend $750 a month paying down debt. That’s a lot of money. I could be throwing it at my mortgage. I could take an incredible vacation with my son that we’d remember forever. My retirement accts are good for my age, but maybe I could shave 5 years off the time I need to work full time.
I am not motivated lately, not motivated to do anything. I’m trying to find the strength to re-commit to getting out of this financial hole that I knew better than to dig for myself.
Love this comment Helene! This is very much how I work, and your last sentence truly resonates with how I’ve felt lately. I know I can do it, stick to a budget, bust that debt, but it can be exhausting, and one thing (or a few hundred things!) pop up and ruin all your hard work. I’m lacking in motivation lately too!!
Thanks Angella … I come out with all guns blazing at the start of every month. And to be honest, when I realize a few days have gone by and I haven’t spent any money, I’m VERY happy and proud. Lately I’ve tried to focus on feeling pride and accomplishment in small things, since the bigger things just feel too big to deal with right now.
This is also what I am struggling with Helene. I hate popping into stores, especially the big box ones like Target and Walmart. I go in for something that is needed and usually come out with other things, almost 90% of the time.
Toward the end of the month it starts getting harder, especially since for the most part, our income comes in at the beginning of the month.
I don’t know. I see it as mathematically equal… If your spending is $1000/mo and your income is $2000, you have 2 ways to reach a $1500 savings rate… either reduce your spending by $500 or increase your income by $500 (or any combination therein). It’s all about balance. Though I do believe in cutting expenses as much as possible and get rid of excess, there’s only so much you can cut, while there is not that much of a cap how much you can bring on extra. May be as hard to get extra income as cutting expenses past the bone, but yeah. I only have a handful of rather inflexible expenses ($120 for food, $100 for gas, $80 for anything and everything else including entertainment, toiletries, tolls, etc, $50 cell bill and rent), so I’ll be looking at the other side of your coin (increasing income). Good luck with your examinations! Hope you reveal to us the ‘before’ and the ‘after’.
Great comment Tania. I just listened to a podcast today actually. Over at http://chrisducker.com Chris interviewed Mike Michalowicz the author of The Toilet Paper Entrepreneur (great book btw) where they are talking about Mike’s new book Profit First. It was an amazing interview.
In this interview he talked about having two things mathematically equal, but it is all about mindset. He was talking about businesses and how they see profit. Most see it as Revenue – Expenses = Profit. He wants to flip everything around and make it Revenue – Profit = Expenses.
It is the same amount of money, but if you pay yourself first you are more likely to see that profit. As you will build your expenses around to what is left every month.
Now this isn’t totally the same as what I talked about in this post, but do you see how even if they are mathematically equal they can be worlds apart.
i think maybe you could also try to save towards living on last months income…from I think ashley’s last post…then it might be easier for you to budget since your income is variable.
I still think your biggest hurdle is you don’t have a well-defined budget. If you can save enough to try living on last months income then you could probbaly control and cut expenses a little easier.
This sounds like a really good idea, but I am really not sure how I can go about doing this.
looking to review your expenses again is a great idea. but in your last post you committed to increasing your income by $1000/month by december 2015, I believe. Are you going to stick to that goal?
I am still sticking to this goal, I really would like to increase my income and believe that I can do so by this deadline.
While getting out of debt I believe in cutting expenses and trying to earn more. But I absolutely believe the lasting benefits of staying debt free mean decreasing expenses and planning. I paid off all of my cc debt by working overtime as much as possible for one year and reducing my spending. Now I only have student loans left that are on track to being paid off in two years. My husband and I have cut our monthly bills to the bone and found ways to make extra by selling things and working a little extra here and there. We hope to keep this frugal lifestyle similar to what MMM suggests.
So yea I absolutely agree with your intent. But I think budgeting and keep going ahead of upcoming bulls is key to success. Also, if you can fund ways to make some extra income during the debt repayment time will expedite the process. Good luck!
Thanks scarr!
As MMM says, debt is a hair on fire emergency, and needs to be treated as such! Are you committed to making it that much of priority? I think you should submit your financial profile as a ready case study!
Reducing expenses is such a powerful way to increase savings, but doesn’t get the same respect as increasing income. I think people look at reducing expenses as a temporary solution to stop the bleeding, rather than a lifestyle change. We don’t have any debt besides a small 12 year mortgage, so for us, reducing expenses was the next logical step. It allows us to save so much money every month, on a modest income (80k). It truly is amazing how much money can be permanently cut and then funneled into savings! Granted, we don’t have cable now, drive older, well maintained cars as little as possible, make what we can, and generally shop 2nd hand but when my hubby retires at 42, it will be so worth it!
I don’t consider 80k to be a “modest income!” Boy, if the average person can’t make it on that, they are not trying. Most Americans would love it.
For our area, 80k is modest. Its all relative…
42 is a great age to retire. That makes it all worth while doesn’t it? You are right about how finding ways to save doesn’t get the same level of respect. But in many ways they are still equal. I am not aiming for respect or anything, I am aiming to get this done while still being able to live the lifestyle that I think is right for my family.
Anonymous,
Where we live, $80,000 is a modest income. Many many people make more than this.
I pretty much disagree with you, Jim. You can only cut so much from your budget. How much more can you cut? $500 $1000. There is a limit because you still need to live. Your earning potential is unlimited. You could easily make another $500 or $1000 or more. You could maybe double your income or triple it. Excluding your wife’s disability income, I bet you could triple your income if you got a job with a little overtime.
I am not so sure about this ND, I do agree that you can only do so much as for cutting the budget and that earning potential is unlimited. In my geographic location, this probably won’t happen with my experience. I was in the food industry for far too long to think any different. I don’t think that I could triple my income with a “job.” But I do believe that I could triple my income of my business.
Might not make sense what I just wrote, but I do believe that what I am doing is the best possible way for me to make money. I am already making more than most of my other jobs, granted now I have to pay more taxes, my insurance is higher, and I have to have more kinds of insurance. All of which eat away at some of my income.
“The most important thing to note is that cutting your spending rate is much more powerful than increasing your income. The reason is that every permanent drop in your spending has a double effect: it increases the amount of money you have left over to save each month, and it permanently decreases the amount you’ll need every month for the rest of your life.”
Totally agree with this but it shouldn’t be a reason for one to want the same income for a long time. When we can, we should strive for a better income because knowing how to be frugal and having a higher income are an awesome combo. Cheers, great post, Jim!