Save more or earn more?

Save More Earn More Sweat Your Assets


What is more important to achieve financial independence: to save more or earn more? This is an age-old financial debate between defensive and offensive approaches. Many gurus and experts get excited about defending one side over the other.


    Debating which is better is not an effective approach because saving and earning are two key aspects of wealth creation. You need both to achieve your financial goals, especially if you want to speed up the process (reducing the years and efforts required to arrive there).

    You particularly need both to harness the power of investments, as outlined in this wealth formula:

    STEP 1: Earnings – expenditures (consumption) = Savings

    STEP 2: Savings x Investing returns = WEALTH

    Without earnings, you don’t accumulate savings. Without savings, you cannot invest and grow your assets (wealth)! It is as simple as that. 


    There are a few exceptions to the “save more or earn more” dilemma:

    1) If you have already achieved your financial goals, you could just focus on protecting your wealth, controlling your lifestyle (expenditures), and managing your investments. You no longer need to concentrate energetically on earning more. To a certain extent, you no longer need to save more. Your savings are already allocated to investments that provide sufficient cash flow. You are in “cruise control” mode, living within your means to the lifestyle degree and needs your accumulated wealth can afford. Do you still want to earn and save more? Great, you will do it if needed.

    2) You have bulletproof health insurance, life insurance, and pension funds. These can be linked to your company or provided by your generous government. Worldwide, these cases exist but are rare and becoming less common (Pensions, Financial Security and Social Protection). Under these circumstances, you believe you don’t need to worry about savings and investments. Do you still want to earn and save more? Great, better safe than sorry.

    3) If you are “broke,” don’t have disposable income, don’t have sufficient earnings, and have no savings (you are not a rich broke), focusing on saving is NOT strategic. Yes, you can still find ways to optimize your fixed and variable costs, optimize your budget, and cut some low-value expenditures. Still, it would be best to focus on income generation activities (earnings) immediately.

    4) You heavily invest in yourself to fast-track your earning potential. It can be in higher education, technical training, side hustle, or business. When you invest in yourself using your funds (not borrowing), you immediately reallocate your savings into investments. While you technically save part of your earnings, you are not accumulating them. Warren Buffett stated that “you are the most important asset” (YouTube video) and that “the best investment is in yourself because the more you learn, the more you earn.” Therefore, it is a great option if it lasts a short and specific period and does not become a vicious circle. Being a lifelong learner is a wise ambition and lifestyle, but it should not cause long-term financial distress. 



    Aside from those exceptions, I would strongly focus on the “savings” first,


    ...if you don’t know how to keep some of the money you make in your life and convert it to assets, earning more will never get you free! So, even with small amounts, saving habits are good to develop.

    The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates a sense of order, trains forethought, and so broadens the mind. T.T. Munger


    A Penny Saved is NOT Equal to a Penny Earned” for every $ saved, you need to earn at least $2-3 more to be even vaguely equivalent. The first obvious reason is the cost of earning in the form of income tax. Depending on where you live, this could range from 25% to 50% of your revenues. Then add in the cost of your time to earn that money and the other direct and indirect costs, like transport to get to work, clothing, etc. This doesn’t take in the indirect costs of what you miss out on (opportunity costs) or the risks involved in such actions.

    Another reason saving is strategic is because most people have leaks in their money wallets. A review of fixed and variable costs will reduce unhelpful, irrational expenses or habits (keeping up with the Joneses). It will quickly increase your saving rate and, therefore, your investing capacity, getting you to achieve your financial goal faster, without dramatic actions.

    If you want to build saving habits, there are many approaches and schools of thought, strategies and tactics to know and consider based on your character, values, lifestyle and goals—no wrong answers. It is possible to rely on various approaches; some naturally overlap. 

    – The minimalist approach: you don’t need that much to be happy. Escape the consumeristic trap. Less is more. 

    Intentional living: review your lifestyle habits and life choices. The correct alignment between our value-based lifestyle and personal finance and investment decisions will secure the most natural and fruitful path to financial independence and intentional living. For Instance, Instead of looking at savings as Income-expenses, the writer Morgan Housel suggests this “mindset” based formula: SAVINGS = INCOME – EGO, implying that many expenditures are just “wants”. 

    The Cheap approach: buy cheap! Live cheap!

    – The afford anything, but not everything approach. Be selective with your wishes. Balance a quality lifestyle with a wise Financial plan.

    – The FI-RE approach (save as much as possible and invest as much as possible to fast-track your Financial Independence and Early Retirement)

    The budget approach: track every expenditure

    Pay yourself first approach: keep it simple, just automatically transfer a fixed % (10%, 20%, etc.) of your paycheck into a savings/investment account, and spend the rest of your disposable income guilt-free.

    The business approach: keep your Overhead / fixed costs down and control your variable costs while allocating time and resources to increase your income.

    How do you know if you are saving enough? 

    A) The hardcore, moralistic approach: “If it does not hurt, you are not saving enough.” I read this quote on the Financial Samurai blog. I liked it, because it calls for discipline, with no room for B.S. Still, It is not for everyone’s taste. It can be helpful to overcome difficult economic times (take control of your expenditures), but it could be unsustainable or not worth it in the long term. Let’s be clear: One of the goals of financial independence is to be in a position where you don’t have to worry about money. You overcome negative emotions (fear, worry) about money and wealth.

    B) The formula’s approach. It comes in different forms: save 10% of your monthly income. Alternatively, use the   50-30-20 rule to allocate 50% of your income to running costs, 30 % to Wants, and 20% to savings. The FI-RE formula even pushes savings up to 50% or 70% of your monthly income. These formulas are a good start in giving you a framework and benchmark to consider. There is no standard formula for all of us that could last any season of life. 

    B) The goal-oriented method is – for me – the most effective way to set your saving goals because It is based on your financial goals. You then reverse engineer how much money you need to earn, save, and invest to achieve your financial goals. You can check out these related articles:

    – How to achieve one million dollars of Net Worth

    – How to calculate Your financial freedom number


    Once you know you have no leaks in your wallet and your expenditures are consciously checked, justified, and optimized, it is time to work on your earning capacity.

    • You need to make money, then save and invest it. You cannot just earn and spend. You need to pay yourself first. You will need more than earnings alone to reach your financial goals. If you earn but cannot save, you have no seeds to plant or mechanism to mobilise and exponentially increase your assets (how long does it take to double your money). You need to reallocate your savings to productive investments to “give every dollar a job”!

     Otherwise, you just live in the moment without creating and accumulating enough wealth to secure your long-term financial future lifestyle, or capacity to make an impact

    • You need to make money and do it Actively first. The Passive income process is part of the Investment process and requires enough cash flow from your income and a good saving rate. So, despite financial porn news on becoming rich through investing, let’s make it real! You can invest and fast-track your wealth through investment, but you also need sufficient income from a job, career or business to grow your portfolio of investments.

    Let’s look again at the wealth formula:

    STEP 1: Earnings – expenditures (consumption) = Savings

    STEP 2: Savings x Investing returns = WEALTH

    Securing steady earnings and controlling your expenditures is important to secure enough savings. The formula relies on a long-term process of savings to be put aside, accumulated, and invested regularly (monthly or quarterly).  Only when your returns from your investment cover your running costs can you consider focusing only on Passive Income?

    I don’t see reasonable exceptions to this rule:

    – if you plan to invest without savings, you must go into debt. You borrow the money and invest it. It is technically possible but bears high risks (leveraged investments). It is common and less risky with a mortgage when investing in Real Estate. For a retail investor, it is not wise to approach this strategy outside the Real Estate sector.

    – If you plan to make money out of limited savings with get-rich-quick schemes, high-profit returns, and speculating, again, it is not advisable for a retail investor.


    You might prefer focusing on a defensive or offensive approach based on your character. All finance is behavioral and personal. Still, I suggest focusing on both aspects outside a few listed exceptions. A balanced mix of higher earnings and lower costs is the fastest and most effective way to achieve your financial goals. Once you know the options, the right mix of approaches and the degree of saving and earning is your call.

    Just keep it real. Sweat Your Assets.

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