I am only 26, but I still think that I have made a lot of financial mistakes. Every now and then— I spend some time learning about finance, investing and saving. So that I can save myself from making those mistakes again.
One such mistake that I have made till now is to focus entirely on saving money instead of earning more money.
And not only me, but a lot of people makes this mistake.
Everyone prefers to save money as compared to trying to earn more. The reason is not because people are frugal or something.
The reason is— it takes less effort to save a dollar than to earn it. Also, saving more money is in your control as compared to earning more money.
Once we realise that we need to save some money, it's not difficult to do that. Like cutting your bills on netflix, eating out less and not buying new gadgets/clothes.
Basically not buying unnecessary stuff. The things you need less.
Saving sounds more attractive to the people because most people don't want to do more work to earn more money.
But the thing is, saving money comes with a limitation. If you earn $1000 a month, all you can save is $1000. And even that is almost impossible. You need to eat, pay rent, travel, and there are a thousand more unexpected expenses.
So, in general, the lower your income, the less you will be able to save. It only becomes efficient when you earn a lot of money. Because then you can save a good amount of money every month.
What's harder than saving some money is earning more money. Earning more money requires time, effort, and most importantly— skill.
The greatest benefit of earning more money is that it brings more freedom into your life. And that's what everyone wants. More freedom— more time.
Having more time is the biggest motivator which comes with earning more money. It doesn't connect with saving more money. Saving money is like having an emergency fund. Which will help you in case you fall short of your current expenses.
To earn more money:
- Have multiple streams of income— atleast two
- Invest instead of saving some money
- Find a way to earn money from your hobbies
But the ultimate goal should be both. To earn more and save more. And the best way to do that would be to focus first on how to make more money. Once you start making enough, then you can focus on the leaks. Where you are making irrelevant expenses. Where can you cut them short.
To save money, you should:
- Budget well
- Make a spending journal— Write down everything you spend. Once you have a rough record of your spending, you can cut things out of it.
- Focus on only what you must spend not on what you want to spend
If you focus on only saving, there is no benefit. You can't save and become rich. It can only save you from unexpected expenses. Or help you in case you lose your job. But it should never be your only goal.
Overall, here is what I discussed in short:
- The amount of money you can save is limited, the amount you can earn is unlimited
- Saving money is quite easy, but less effective
- Earning more money is quite hard but more effective
- Your focus should be to earn more and then to save more