What is the better choice…? Reduce expenses or increase income?
Most people would likely choose ‘more income’ for the simple reason that most people see their money problems as insufficient income.
But
It is important to remember that doing both… increasing income, and holding the line on expenses are both important.
We are all familiar with the concept of ‘lifestyle inflation.’ The more disposble income we have, and the more we are exposed to stimulating ideas on how to spend, we will normally increase our outgo to match increased income.
What Price Fame?
So we may laugh at the idea that expenses are as important as income, but it is really true. There are countless stories of athletes who make millions of dollars during their careers, and yet quickly go bankrupt. Some are bankrupt the day they leave their sport. A summary of some of these can be found on Wikipedia here. Having a high income did not save them from ruin.
We can point to the many pitfalls awaiting highly compensated athletes, or any one in fact. Poor advisors, spending lavishly, being taken advantage of, owing large sums for multiple child support cases, investing in ill-advised ventures, and so on. Since a high income did not save these athletes from difficulties, we can postulate that if they had been much more conservative with their expenses they could have survived or even thrived.
Unlucky Winners
The news is similarly bad for lottery winners. People who win the lottery are more likley to go bankrupt than an average person. I suppose they cannot hold onto their winnings.
Therefore, it is not out of bounds to say that limiting spending is as critical part of financial management as income.
Can you keep your expenses in check while increasing your income? You can let me know here.
The pocketwatch and fob used by Abraham Lincoln, about 1858. The English gold watch was purchased in the 1850s from George Chatterton, a Springfield, Illinois, jeweler. Courtesy National Museum of American History at the Smithsonian Institution.
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