Forget Frugality. Start Earning More Instead

The classic advice of cutting back on lattes is the best example of personal-finance "experts" run amok. Not only does the advice not work -- most people fail to cut back on their caffeine because it's an important pleasure in their day -- but even if it did work, $3 a day doesn't add up to much!
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Most personal finance "experts" love to talk about cutting costs. "Stop spending money on lattes! Don't buy those jeans! A vacation? Not in this economy."

The classic advice of cutting back on lattes is the best example of personal-finance "experts" run amok. Not only does the advice not work -- most people fail to cut back on their caffeine because it's an important pleasure in their day -- but even if it did work, $3 a day doesn't add up to much!

You could focus on far more important things, like automating your money or negotiating your salary. For example, negotiating a single $5,000 raise early in your career would be worth over $1 million over your career. How many lattes is that worth?

So why don't these experts ever talk about earning more?

Answer: They don't know how.

Consider this:

  1. There's a limit to how much you can save, but no limit to how much you can earn. Think about that -- for someone with experience in earning more, it's far easier to earn $1,000 than to slash $1,000 from your budget. And more fun.
  2. Most people can't earn more -- so if you can, you win. Because of differences in skill, motivation, and luck, few people ever try to earn more (they just complain about taxes) so if you're in that small group of motivated people who actually do earn more, you earn the lion's share of side revenue. Instead, people focus on cutting costs, which is admittedly difficult, but really anyone can do it. If anyone can do something, the rewards are predictably smaller. But when you pick an area to excel in where there's a built-in barrier to success -- like earning more money on the side -- the winners usually get disproportionate winnings.
  3. Earning more diversifies your risks. What if you lost your job tomorrow? Would you have another source of income? If not, the odd irony of recessions is that if you lose your job, everyone else is losing their jobs... so there are few jobs available. From reading this site, you know about diversifying your investments. What about diversifying your revenue sources?
  4. Doubling your earnings is much easier than doubling your savings. Once you earn your first $1,000, it's relatively easy to turn the dial to make $1,500, or $2,000, or even more. I call this the Tuner Strategy, and I teach it to all of my Earn1k students.

When you combine earning more with the automation strategy for saving, investing, and spending that I outline in my personal finance book, you have a powerful financial combination.

Now I'll admit, managing your spending behavior is important. If you're earning $150,000/year and spending all of it, you are a fool. But let's be honest with ourselves. Experts have been telling us for years to keep a budget, but has this ever worked? When your friends are out having fun, is it any consolation to be at home alone with your water-tight budget?

Of course not.

People do NOT want...

  • To have to "learn" about personal finance as a whole -- they just care about their own situation
  • To miss out on the things they love because it's not in their "budget"
  • To be told they CAN'T do something (this is probably the #1 biggest mistake personal-finance "experts" have made in the last 50 years: turning money into a conversation of "no"s, which elicits reactance)
  • To wait 50 years to see results
  • To have to manually "throw money away" into a savings account
  • To ignore their emotions about money

People want...

  • To not worry about money
  • To be in control
  • To occasionally live extravagantly
  • To dominate their friends (virtually everybody neglects the social aspect of money)
  • To work at a job they love

I want to live a rich life, and that means spending money on the things I love. I want to maintain my basic desires -- living in a nice apartment in New York, being able to eat out with friends, and traveling around to see my family/friends. If you asked me whether I'd rather cut down on those, or spend time earning money so I could live the lifestyle I wanted, I'd answer earn more 100 percent of the time.

I've written about why you should focus on the big wins instead of trying to save money on stupid $3 lattes. Earning more is one of the biggest wins you can have -- especially once you can systematize it so you have a steady, increasing side income.

And it's not just about money -- it's about living a rich life where you can control your income, not be subject to the whims of a corporate HR department or boss. Use the extra money to tackle your goals. Use the extra income to pay off debt, save more, or spend on the things you love (e.g., trips to Vegas). Run a quick simulation -- how much faster would you hit your financial goals if you could earn extra money. Say, an extra $500 or $1,000/month?

I'm not talking about starting the next Google. You can turn your skills into services that people will pay for. Let me give you an example:

Like all of us, I know how to use Facebook, YouTube, Myspace, and Flickr. In college, I was able to turn that into consulting gigs with multiple venture-capital firms who wanted to learn how young people were using consumer services on the web. This consisted of me giving them a course each week -- online music, videos, social networks, etc -- including showing them how guys checked girls out on Myspace. This was perhaps the greatest achievement of my life: Showing how guys found hot girls' profiles to a bunch of venture capital partners.

Would you have ever thought you could turn your daily routines into a consulting gig? I wouldn't have before I landed those gigs. But people were willing to pay for it because they had concrete needs: they wanted to understand how young people were using new technologies so they could remain sharp investors. Money wasn't an issue, but time was: they'd rather hire someone who lived it than try to learn themselves. Once I'd established that I was skilled at these services, but more importantly that I could create an effective structure for teaching the VCs, they hired me.

Lesson learned: It's not enough to simply be good at something, whether it's freelance writing, dog walking, or graphic design. Millions of other young people know how to use Facebook and Flickr far better than I do. It's not just knowledge: but when you can package what you can do into something that's useful for someone else... that's the tipping point where you start earning thousands of dollars on the side and start living a rich life.

One of the challenges that stops most people from even getting started on earning more is finding an idea. Some people have no idea how to proceed. Others have 1,001 ideas and don't know how to pick the right one. You can start by mapping your skills to services people are ALREADY paying for. Then talk to people who could be your customers to see what they really want and need. I've put together a free Idea Generator Tool to help with this process.

Let others worry about pinching pennies. You focus on the big wins.

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