At iwillteachyoutoberich.com, Ramit Sethi asked this recently:
It seems like 98% of personal-finance material (blogs, magazines, books) focus on spending LESS — keeping a budget, saying “no, no, no” to lattes, jeans, and vacations.
Why?
Why don’t they cover earning more, or negotiating, or increasing your responsibilities at work, or understanding the psychology of your own behavior, or all the other things besides cutting down on spending?
I’m trying to formulate 3 crisp answers.
So, what do you think? Why is the vast majority of personal-finance material focused on cutting down on spending?
I answered in his comments, but I wanted to repeat that answer here. I hope you find it useful.
I learned from Your Money or Your Life that for most people, most of the time, spending less is easier than earning more. I found that to work for us, and it was a key step in retiring at 34 instead of in our 50s. Unfortunately, most people conclude that they must limit spending to a predefined budget, and find that difficult to make work. I don’t set budgets.
Budgets don’t work because there’s no such thing as a typical month. I also learned that from Your Money or Your Life. For this reason, we never budgeted, but instead, tracked our expenses, looked for wasteful expenses, then eliminated them. We asked ourselves the question, “Do I value this expenditure?” When we answered “No”, we stopped spending that expenditure. We made a quantum leap when we decided that we didn’t value living in an expensive city like Toronto any more.
Now, fortunately for us, when we reduced our expenses, we had an active profit each month, which we turned into passive income generating assets, and the compounding effect took care of the rest. Some families can’t do this. Even after eliminating expenditures they don’t value, they still run on an active deficit each month. These families need help to start earning more money, which usually demands an investment they already can’t afford.
At the same time, Rich Dad, Poor Dad has pointed our attention to the tendency of families to spend more as they earn more. As a result, earning more does not translate to increased active monthly profit (nor reduced active monthly deficit), meaning that it does not lead to increased passive income and more financial freedom.
I would conclude from all this that first focusing on spending less leads to better results than first focusing on earning more.