Earn More or Spend Less? Why Savings Rate is King

Updated: 2025. Original article: 2017.

Here’s a question that splits the personal finance world right down the middle: should you focus on earning more money, or spending less?

There are surgeons earning $700k a year who are just as stuck as factory workers earning $70k – we’ll look at an example of that in just a minute.  And I’ve seen people on modest incomes achieve financial freedom much faster than high earners.

So which approach actually works? There are two schools of thought out there…

One says you shouldn’t really focus on saving money, but instead, focus on earning more to get ahead.  The other camp says you should focus on saving, and your income doesn’t really matter that much.

So let’s look at the ideas behind both approaches and see what we can take away from each – and I’ll tell you which one I think is more important to focus on.

Earn More

This camp says your time is much better spent chasing higher income, and saving money is basically for cheapskates and losers.

The idea being – just enjoy yourself as you hustle and work your way up the wage ladder or grow a business so you can maximise your earnings.  Then with your much higher income you’ll naturally end up saving a lot just because there’s so much cash coming in.

The mindset here often is, there’ll be more money later so you may as well enjoy your life now with whatever income you have.  you’ll be on the big bucks soon and THEN the saving can begin.

While the ‘earn more’ crowd like to think of themselves as having an abundance mindset… this strategy can actually come from a scarcity mindset – there’s just not enough money to be able to save right now.

The problem with this approach is, the ‘saving’ part often comes too late.  Here’s an all-too-common storyline…

Early-Mid twenties are spent maybe travelling, having fun with their income and just doing whatever they feel like!  Late twenties are spent dating, maybe meeting someone and settling down.

Thirties – that’s when you try and buy a house and maybe have kids.

In your 40s, you’re paying the mortgage on a bigger house and the kids are getting expensive.  Of course, without the focus on controlling costs, you’ll also have nice cars and great holidays.

When your 50s come around, you start thinking about retirement and how you need to save.  Maybe you buy a cash-hungry investment property or dabble in shares.

Sixties – that’s when people get rid of their debts, pay off the mortgage, maybe sell the rental, add a little to super and retire on the pension or whatever investments they’ve managed to build in these late stages.

Sound reasonable? There’s a catch…

There’s next to no flexibility built into that plan.  You work full-time, year after year, to pay for an expensive lifestyle, or the party stops.

If you don’t like your job or want to switch to something more enjoyable… it’s very difficult.   Want 6 months off to spend time with a sick relative?  Not an option….

Want to be a stay-at-home parent to be with your kids more?  Sorry, you’re outta luck.

Without a solid savings habit and a decent gap between your income and expenses, it simply doesn’t matter how high your income goes – you’re stuck.

As for the idea that you’ll naturally just save when there’s so much more money coming in – it sounds great in theory, but goes against human nature.  The tendency is overwhelmingly to just spend the max of what we can afford.  So without a savings focus, at some point, more income isn’t gonna magically save you from a lack of control over your spending.

Compare that to someone who starts saving seriously in their 20s or 30s.  Even if they don’t have the highest income, they focus on living efficiently – getting a lifestyle they enjoy without spending a lot.

By the time the Normal Lifestyle Brigade finally starts thinking about retirement at 50, the early savers have already been financially free for 5-10 years.

My point is, when you focus solely on income to solve your financial problems, it just ends up being soaked up by lifestyle costs.  All of us have known high income people in this trap.  While income helps, it’s clearly not the cure-all solution it’s made out to be.

What about the merits of earning more?

‘Earn More’ theory says saving money is of limited value, since there’s a limit to the amount you can save.  This is true.

While on the other hand, your ability to earn money is effectively unlimited, since you can do more hours, get more qualifications, and increase your worth in the marketplace.   That’s also mostly true.

The only issue with this is, you don’t cure a spending problem with more money!

Earning more cash for most people just masks an underlying reality of being really crap at managing money.  They just end up being a fancier version of broke – driving a Mercedes to a job they hate instead of a Toyota to a job they hate.

And in the case of working more hours – you’re just trading more time for money, getting more and more time-poor.

Then, the more time-poor we are, the more stressed and unhealthy we are.  In general, we become more unsatisfied and spend more money as a result.

Often we spend on things we think will make us happier, save us time or bring us a little short-term sugar hit of joy.  But it doesn’t really work very well.

Plus, we should be trying to get our free time back, not give away more of it!

When does earning more actually work? 

You might think I’m shooting down the idea of earning more.  Absolutely not.
It’s something I put time and effort into when I was trying to become FI.

Earning more can work incredibly well.  But ONLY if you’ve got your spending under control and those extra earnings are going to translate into extra savings.

Because that’s the only way you’ll bring financial independence closer. Otherwise you end up increasing your baseline needs which increases how much you need for FI.

The truth is, most Aussies who work fulltime earn pretty decent incomes.  In my view, the problem is not needing more money first – it’s learning to better manage the money you already have – so that it stops disappearing from your bank account.

Having said that…  Folks on lower full-time wages of say 60k or less should definitely make a point of trying to bump up their earnings if possible.

If not, they’ll have to optimise more than others or be a bit more creative with their lifestyle arrangements – maybe by renting a small apartment in a handy location to save on rent and go car-free.

That would optimise both their housing and car costs – but there are countless options which we’ll go into in future episodes.

If there’s a couple who makes 60k each, both would earn about 50k after tax, or 100k combined take home pay.

With a few improvements to the typical household, most could live on 60k per year, allowing them to hit a savings rate of 40%.  This is roughly what we spend for example and there’s plenty of unnecessary costs in there.

You may disagree with the example.  But the reality is, a lot of Aussie households are making far more than this yet save next to nothing – in fact, if you ask them why they’d say they don’t earn enough or that ‘life is too expensive’ or taxes are too high.

They focus on everything outside of themselves, rather than looking inward at what they could do to improve their situation.

Why your income is ALMOST irrelevant

Let’s look at two ends of the salary spectrum, and we’ll ignore tax for simplicity.

A surgeon who earns 700k and saves 70k per year. And a factory worker who earns 70k per year and saves 7k. Both spend 90% of their pay and save the other 10%.

Amazingly, despite the surgeon saving JUST AS MUCH as the factory worker makes in a year, they would both reach FI at the same time.

Why?  Because our medical professional spends 10 times as much, he needs 10 times as much in investments to retire.

Let’s say their investments will provide them around 4% per year in income.

With the doctor’s spending sitting at just over 600k per year, he’ll need a monstrous $15m in investments to sustain his lifestyle and give his patients the flick!

Our factory worker who spends a bit over $60k will need roughly $1.5m to clock out of the soul-sucking smelly factory for the last time (having worked in several factories I can confirm they’re often BOTH soul sucking and smelly lol)

And here’s the kicker – if our factory worker bumped their savings rate to 20% instead of 10%, they’d reach FI in half the time of our surgeon. That’s the power of focusing on the right lever.

Financial Independence is dictated more by your spending, than your income.
The overall goal is to maximise your savings rate, regardless of your income.

The surgeon definitely has the advantage, but he’s wasting it with his enormous lifestyle costs.  And yes it’s an extreme example, but that’s so you get the point.

From speaking with several readers in high paying fields, I’m told their peers typically spend everything they earn and often live week to week.  How is that possible?  Their higher income fuels endless desires that always seem to match the limits of what they can afford.

When they earn 300k, they live a 300k lifestyle.  When they earn 80k they live an 80k lifestyle.  Funny how that works isn’t it!  Imagine if they just lived their 80k lifestyle while earning 300k!!!

Well at least they’re way happier spending all that money, right?  I doubt it.

Beyond the basic things we need like shelter, food, clothing, meaningful activities/hobbies, and maybe a little bit of fun money for optionality and novelty, our happiness doesn’t really improve that much, the more crap we buy, or the more lavish our lifestyle becomes.

My philosophy: focused saving, regardless of income

I don’t believe in trying to earn more to compensate for a lack of discipline. In most cases, if people aren’t saving money on a lower wage then they won’t save on a higher wage either.

That said, the magic combination is doing both.  If you can make more money while also reducing your expenses – or at least keep them contained – you’ll make phenomenal progress.

And as discussed in this article – there are ways to work around your own behaviour by setting up automation systems in your finances.  Definitely go listen to that if you struggle to save through willpower or habit alone.  This can guarantee you start banking a good amount of your income, regardless of how highit is.

I think a lot of people just naturally look at money in the bank and instantly think it needs a purpose – subconsciously at least.  The only idea that seems to come to mind is “What can I spend this on?”  But instead of that, how about approaching idle cash from the lens of “Where can I invest this?”

Of course, the idea behind maximising spending is that you only live once, so don’t miss out on what money can buy. More spending = more fun. But I look at it a bit differently.

If you only live once, why would you want to spend so much of that one life at a job you don’t necessarily love?!  Even then, what about financial security and having massive optionality?  Especially when you could end up with a mostly freedom-based lifestyle in less than 10 years.

Why not do that first?  10 years of working smart, for a lifetime of freedom!  That sounds like a pretty good deal to me.  After that, you can do whatever the hell you like.

You’ll probably end up making money later anyway, because you’ll want something productive and stimulating to do.  THIS is the cash that you can blow, if you still want to – when you’re no longer trading away your freedom to pay bills.

The funny part is, once you simplify your lifestyle and focus on things that matter, you might even realise you don’t want any of that other crap because life is awesome the way it is.

Final thoughts

So yes, saving money matters, even if it’s not as fun or exciting as imagining yourself hustling all the way up to earning 500k per year.  And here’s the thing – even if you focus on earning more, without keeping a good portion of that money and using it productively, you’re still not gonna get anywhere – you’ll just be fancy broke.

At the end of the day, when it comes to freedom, it’s not about how much you earn, it’s about the percentage of your pay you can save and invest.  

Lower baseline needs make it MUCH easier to amass a big pile of investments, while also making it easier for those investments to cover your expenses.  And that… is what drives the ability to become financially independent decades before the traditional retirement age.

Here are some resources you might find helpful:

📘 My Book
Your complete guide financial independence in Australia.  Available on Amazon, Audible and Spotify.

🏡 Mortgage Broker
Deanna and her team have helped me and many readers with home loan strategies over the years (including debt recycling). Check them out.

💼 Financial Advice
For those wanting personalised guidance with strategy, super, tax, or retirement, I can connect you with someone I trust. Find out more.

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