The Power of Spending Less

the power of spending less

Photo courtesy of Capture Queen

If you need to find more room in your budget, whether it’s to save more money or simply have an easier time paying your bills, you’ve got two options. You can either:

  1. Spend less money, or
  2. Earn more money

Both are great options with their own particular strengths, and I actually try to practice both myself. When you can combine the two, you’ve got a great recipe for giving your family both the security it deserves and the freedom to live the life you want.

So this week we’re going to talk about both approaches and why they’re each so powerful. On Thursday we’ll talk about earning more, and today we’re going to focus on spending less. My hope is that you can find your own way to combine the two that brings more peace and happiness to your life.

So what is spending less really all about and why is it such a powerful tool? There are some not-so-obvious benefits to it that often get overlooked but can really make your life a lot easier and happier.

Let’s get into it.

What spending less is and is not

I want to be clear about something from the start: I don’t view “spending less” as a goal all on its own. To me, spending less is really just one part of an overall philosophy of frugality, and I see frugality as a two-step process:

  1. Deciding what matters to you and what doesn’t. What kind of life are you trying to build? Which things bring you genuine happiness and which don’t?
  2. Purposefully using your money on the things you value and not on the things you don’t.

Over time this can mean spending more money on the small number of things that bring you happiness. That’s the long-term goal, and it’s the point at which all this personal finance stuff really starts to pay off.

But the reality is that when you’re starting out, frugality is largely going to be focused on cutting out some of your spending on the things that don’t matter. That is, it’s going to be more about “spending less” at the start than it will be about spending more on things you love. You first have to create room in your budget before you can start putting your money towards the things you care about.

The good news is that there are a LOT of benefits that come from spending less money, beyond the obvious ones.

What are the benefits of spending less?

With earning more as the other option for providing more room in your budget, what are the benefits of spending less? Why even worry about being cutting things out of your budget when you could simply focus on bringing in more income to cover all of your various wants?

Well, there are a few big advantages that frugality has over earning more more money. Let’s dive into them.

You can see immediate results

Earning more is an excellent long-term option. For many people it’s actually one of the big keys to creating a happier, less stressful life simply because it provides more options and opportunities.

But the truth is that it can take time to figure out how to earn more money, while you can start seeing benefits from frugality today. Right now if you want.

Do you have a bill that you’re tired of paying? Call up your service provide and negotiate it down. Or cancel it outright.

Take a few minutes to shop around for auto insurance, or homeowners insurance, or life insurance. You might be able to save a few hundred dollars per year.

Are you making a big purchase in the near future? Spend the extra time to make sure you’re getting the absolute best deal possible. We went the extra mile to explore all our options during our recent car purchase, and that effort ended up saving us almost $10,000.

Focus on big wins, and especially things where you’ll continue to see the benefits month after month (like a cable or cell phone bill). Then take those savings and immediately set up an automatic contribution towards whatever is your most important savings goal right now.

If you can take these actions, you’ll both see immediate results AND set yourself up for repeated success, month after month.

You get a double-win

There are actually two big wins when you learn how to live on less money:

  1. You increase your ability to save money now, and
  2. You decrease the amount of money you actually have to save.

The first one is obvious, but that second one is a huge benefit that’s often overlooked.  The less money you spend on a regular basis, the less money you actually have to save to meet those needs.

It makes sense, right? It’s easier to build an emergency fund with 3-6 months’ worth of expenses when your monthly expenses are $3,000 than when they’re $10,000. It’s easier to hit your retirement savings goals when you only need to generate an income of $60,000 per year than when you need to generate $150,000 per year.

Bit this isn’t just theoretical. There’s some hard evidence backing it up. In 2007, Dartmouth College economics professor Jonathan Skinner found that people with a 15% savings rate needed 34% less money in retirement than people with a 2.5% savings rate. That is, people who saved more also ended up needing less. That double-win makes it much easier to reach your goal.

Want some more evidence of the power here? Check out the chart in this post from Mr. Money Mustache on the simple math behind early retirement. With a 15% savings rate it will take you 43 years to reach your retirement needs. But if you can up that savings rate to 30%, you knock that down to 28 years. What about a 50% savings rate? You’d only need to work for 17 years to hit your retirement goal.

The more you save, the less you need and the quicker you can get there. Pretty powerful.

You have more time to enjoy your life

In general, creating more income requires doing more work. And doing more work usually requires spending more time. And more time working means less time for the other things that matter to you.

Even if you love your job, wouldn’t it be nice to not have to spend as much time on it? To have the option to work more or not, depending on how you felt?

When your expenses are less, your need for income is less, and therefore your obligation to work is less. Which means that you have more freedom to spend your time as you please. You have more freedom to hang out with your kids, take vacations, or see friends and family. More freedom to do more with your life because you have fewer obligations tying you down.

The less you need, the more you can do.

You have more financial security

Every financial responsibility you remove from your life increases your financial security.

It’s simple really. One thing is easier to handle than two. Two things are easier to handle than 10. And if those 10 things come with a big price tag? You’re simply increasing the chances that life can knock you off your feet.

No matter what level of income you’re at, it’s going to be much harder to handle one of life’s little setbacks if you’re living paycheck-to-paycheck than if your spending is less than your income. You simply have a bigger margin for error when there are fewer bills to pay.

For me, building our financial security to the point that I know my family will have the financial resources it needs no matter what is my #1 goal. By decreasing those needs, that security is easier to achieve.

Find happiness in simplicity

When I started cutting back, I found that there was a lot of happiness in the simpler life I was creating for myself. When you cut out the things that don’t matter, you have less to worry about, less to track, less to distract you from the things that actually do matter.

Spending less isn’t the end point, but it’s a heck of a starting point. When you do it right, you make it easier to reach your goals, create a more secure life for your family, and free up more of your time to spend on things you enjoy.

What’s not to like about that?

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  • debs June 23, 2014

    For me, this says it all “If you can up that savings rate to 30%, you knock that down to 28 years.” If only this had been presented to me in this manner, maybe it would have helped me to pay more attention to my finances at an earlier age. When you are younger you don’t think of retirement that much. It’s too nebulous and too far off. Of course the 50% in 17 years is even more compelling and it seems more and more are doing that these days.

    • Matt Becker June 23, 2014

      Agreed! That part is so huge, and it really is coming from the benefit you get in both directions. This is something that’s really been hammered home for me by reading other PF blogs.

  • Money Beagle June 23, 2014

    Trying to do both (spend less and earn more) is the best approach to building wealth, as you’ll increase your net worth on both sides of the equation.

  • Great stuff Matt. I like how if you get used to living frugally now, you won’t need as much to retire on in the first place…of course you will have it anyway because you actually saved for it more. I think once I started cutting out unnecessary stuff I felt like I could breathe a lot easier. That was the best part for me. Now on to earning more! 🙂

    • Matt Becker June 23, 2014

      Yep, cutting back is definitely the first step for almost everyone. You get that breathing room and then you can start moving on to bigger and better. Good luck!

  • Shannon June 23, 2014

    Ever since I started working, I had 2-3 jobs going at one time. But the point you make about spending less giving you more time than earning more really hits home. Now that I’m 30, the years of working multiple jobs are starting to catch up with me and I definitely would like to prioritize my time as well as my savings. An important reminder!

    • Matt Becker June 23, 2014

      That’s something I love talking to clients about. Earning more is great. Working hard is great. Career advancement can be incredibly fulfulling. But most of the time there are other things people value as well, and a big part of good financial planning is allowing people to spend time on those other interests. Good luck figuring it out!

  • Spending less can be hugely beneficial. I prefer to make more money, as it is more rewarding for me, but I think doing both in tandem really accelerates progress.

    • Matt Becker June 26, 2014

      Until recently, I had always been more about spending less but these days I’m trying to be more balanced. I agree with you that working towards earning more is incredibly rewarding. It also opens up a lot more opportunities.

  • Done by Forty June 24, 2014

    Hooray for spending less! I’m such a big fan of frugality — I swear there’s a part of me that likes spending less just for ‘spending less’s’ sake. And hence I work in Procurement…

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