Learning to be frugal is an important part of a balanced budget (cue the cereal box logo). However, it requires enough work that it’s easy to believe that frugality is all there is. It’s only one part of financial well-being though.
Australian coins image from Shutterstock
As personal finance site Afford Anything explains, the most important number in your finances is the gap between how much you earn and how much you spend. The bigger this gap is, the better off you are. However, frugality can only affect one side of this equation: how much you spend. If the amount you earn never changes, your gap is necessary limited. In other words, frugality alone isn’t enough to secure your financial independence:
There are two ways to increase this gap:
- Earn More
- Spend Less
Both are critical. But the more you make, the easier it is to save — and the more substantial those savings become. Frugality is necessary, but not sufficient. Earning more, on the other hand, fast-tracks your path to freedom in ways mere penny-pinching never could.
If you’re spending most of your time looking at how to reduce your spending, but rarely give a thought to how to increase your income, you’re missing half the equation. The gap can be affected on both sides, but your income has (at least hypothetically), no limit. You’ll never get to financial independence without frugality, but it also won’t get you there alone.
The Most Crucial Money Lesson, in Three Words: Mind the Gap [Afford Anything]