The Best Financial Advice You’ll Ever Get!

We’ve run the numbers and the verdict is in:  reducing expenses is much more powerful than increasing income!

In the following screenshots you’ll see the middle “control” columns with different rates of return on investment (ROI) and different initial investment amounts.  The two columns to the left show the impact reducing your expenses has while the two columns to the right show the impact increasing your income has.

Let’s start by looking at a normal ROI after taxes (7%) with some money stashed away in investments.  

a-expenses-vs-income-normal-roi

BOOM!  Reducing expenses significantly means this person can retire 8 years earlier than someone who has a significantly larger income.  Also noteworthy is reducing expenses with these numbers can save 26 years of working on the same level of income.

OK, let’s show two more screenshots, this time changing the ROI to be both low and high. 

b-expenses-vs-income-low-roi

c-expenses-vs-income-high-roi

The power of reducing expenses is still more powerful than increasing income.

Now let’s change the initial starting investment. 

d-expenses-vs-income-no-initial-investment

e-expenses-vs-income-high-initial-investment

Regardless of the initial amount, the power of reducing expenses is still more powerful than increasing income.

I’ll spare you more screenshots, but the same holds true if you adjust the level of income from the current control of $5,000.  It doesn’t matter how much the income level is, the power of reducing expenses is still more powerful than increasing income.

Still don’t believe me?  Here’s the link to our calculator and you can plug in your own numbers.

Why is the power of reducing expenses stronger, you might ask?

–Reducing expenses now (and for the rest of your life) significantly reduces the amount of money you’ll need to have before you’re financial retirement is sustainable for eternity.

–Reducing expenses allows you to invest a higher percentage of your income sooner, meaning you’re more fully capturing the time value of money and the returns from that higher savings/investment rate

Another note, not factored into this calculator, is the higher effective tax rate you pay on a higher income versus a lower one, so really the power of reducing expenses over increasing income is actually higher than depicted here.

What’s this mean for you?

-This should motivate you to do a serious analysis of the expenses you can cut out of your life.  You’ll be glad you did as it’ll save years of work.

Spend more time, energy, and effort on reducing expenses than on increasing income.  This is contrary to the messaging we’ve been receiving since day 1 in our consumerist society, but these raw calculations clearly provide strong evidence countering our societal brainwashing.

-When you’re negotiating during a job offer, instead of pushing for a higher paycheck, see if the company will instead “compensate” you by reducing your expenses—maybe with a company car (so you can sell yours), gym memberships, free lunches, reduced insurance, etc.  Or if you’re an expert negotiator finagle both a higher paycheck and the extra non-monetary compensation, then tell us how you did it!

Bottom Line:  the best financial advice you’ll ever get–reducing expenses is much more powerful than increasing income!

Did this add value to your life?  If so, check out our explanation of a sustainable financial retirement.

2 thoughts on “The Best Financial Advice You’ll Ever Get!

  1. This is excellent! Love the numbers comparison and analysis. Many people get caught up in the earning more and consuming more cycle so easily. Many think they can sustain their current lifestyle with retirement savings even though they haven’t even been saving at a high enough rate during high income years.

    Liked by 1 person

    • Thanks for the comment, Cat! We do what we can to help people realize their decisions have a direct impact on their (financial) well-being, and appreciate you spreading the word too!

      Like

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