Making Money VS Saving Money (Which Is MORE IMPORTANT?) | How to Financial Independence Retire Early


What’s more important to achieving Financial
Independence, a good offensive strategy (in other words finding ways to generate an income)
or a good defensive strategy (in other words finding ways to lower your expenses)? There are certainly some good points on both
sides of this debate so today we’re going to look to find an answer to this often debated
question. Hey everyone Daniel here and welcome to Next
Level Life a channel where you can learn about investing, debt, retirement, and many other
financial topics besides, because, let’s face it, the school’s aren’t going to teach
it for us. So if any of those topics sound interesting
to you or if you want to learn how to better handle your money and have more financial
freedom be sure to hit that subscribe button and the bell next to my name to be notified
every time I upload a video. And if you want to further support the growth
of this channel you can check out some of the links I’ve left down in the description
below which includes a 30-day free trial of Audible and 2 free audiobooks of your choice
as well as a list of some books on money I’d recommend checking out with your free trial,
or you can smash that like button if you haven’t already, share this video with a friend, and
leave a comment below letting me know what topics you’d like me to cover in future
videos. When you’re looking to achieve Financial Independence
there are really only a few things you need to consider. You need to consider how you’re going to make
money, how that money is going to make you more money, and how much money you need to
make in order to be financially independent. Essentially you need to figure out how to
generate an income both through your own labor and without the need for your own labor (since
there eventually will come a time where you simply can’t keep up the workload) and figure
out your expenses. So before we answer the title question of
whether it’s more important to have a good offensive or defensive strategy when it comes
to your finances let’s first look at what goes into each side of the debate. On the one hand, you have people who propose
that having a strong offensive strategy is more important than a strong defensive one
when it comes to achieving Financial Independence. A strong offensive strategy requires you to
focus primarily on raising your income and finding ways to generate extra income off
of that income. Income earned through your own labor is usually
generated through a job or some sort of a business. Income not generated through your own labor,
commonly known as passive income, can be generated in many ways but usually, it’s through some
sort of a business wherein you are the owner as opposed to the boss or manager, or an investment
of some kind. The biggest pro to this side of the debate
includes the fact that income, particularly in highly profitable businesses, can be generated
in effectively limitless amounts for all intents and purposes. This level of income is made possible through
something called The Law of Effection. The Law of Effection states that the more
people whose lives you effect in an environment you control, the more money you will make. Say if you were a really knowledgeable and
skilled personal trainer that wanted to play your financial strategy primarily offensively
and so you went into business for yourself in an attempt to raise your income above what
you could make working at a gym. You could do very well for yourself as a consultant
working with individuals one-on-one or in small groups but your income would be very
limited in that scenario compared to if you instead wrote and sold books or online courses
on how to lose weight, or gain muscle, or put together a good meal plan or all of the
above. Why? Because there’s only so much time in the day
and you only have so much energy at your disposal. Say you’re able to help out five people at
once in one of your small group sessions and each session lasts an hour and costs the client
$50 to attend. Even if you only slept 4 hours a night, took
no time away from work to eat or run errands, and worked for the other 20 hours of the day,
you still would only be able to help a maximum of a hundred people a day and thus earn $5,000
which granted is nothing to sneeze at but it’s not the same as being able to sell a
book at $20 a pop over the internet to a worldwide audience of 7.5 billion people that can be
buying from you 24 hours a day 7 days a week 365 days a year without taking up any of your
time after the initial amount you spent to write the book. And that’s not even to mention the fact
that you could go back to your group consulting gig after finishing writing the book or just
pour that time into making another passive income generating product allowing you to
reach and help even more people and continue to raise your income, rinsing and repeating
until your income is at a level that you are happy with. Having this level of income will not only
enable you to live a much finer lifestyle than someone who chose to play primarily defensively,
but gives you the opportunity to generate massive levels of wealth over time thanks
to the miracle of compound interest. Eventually, it may get to the point where
you have so much put away that it doesn’t really matter how much you spend. Now obviously that’s only ever going to be
true to a certain point because you have to live within your means in order to have money
at the end of the day but there’s a big difference in having means of $40,000 a year and means
of $40,000,000 a year. The biggest con or potential con to playing
primarily offensively is that there’s a lot more risk involved, theoretically. You see there just aren’t that many jobs out
there that pay good money at least when compared to the potential payoff of having your own
business. Which usually means in order to take full
advantage of your offensive potential you’re usually going to find yourself starting your
own business in one form or another and not all businesses work out the way you wanted
them to. Now to someone who has a truly relentless
offensive mindset towards their finances is probably not going to be deterred by this. If one business fails or doesn’t go the way
they expected they just start another one, learn from the mistakes of the first business,
and keep trying until they eventually get it to work, but it is something to consider
because there’s always going to be speed bumps on the road to success. However, another thing that I would like to
point out here is that there’s going to be speed bumps on the defensive path as well. Sure you may not have the failed business
or the potential lawsuits from a failing business but you also don’t have much control over
your job security either when playing defensively. You may get fired due to a poor economy or
heck just having a co-worker in a position of power that doesn’t like you. Office politics are, unfortunately, very real. So just because there are risks associated
with the offensive approach don’t just assume that there aren’t risks with the defensive
approach. The biggest pro to the defensive approach
that I’ve heard mentioned a lot, aside from the perceived lack of risk that I’ve already
covered, is that learning to live happily on less gives you more leeway in achieving
Financial Independence (and possibly more happiness, though it’s arguable whether
this is because of the confidence you gain from learning to live well on less or from
the large stack of cash in the bank account… maybe it’s a bit of both). But coming back to the idea of leeway, it
all goes back to the 4% rule which I’ve covered in previous videos. It states that you need roughly 25 times your
annual expenses in retirement saved in order to have a reasonable chance of not running
out of money after you leave the workforce. What this means is that for every dollar you
cut back you save yourself from the need to acquire $25 worth of savings in your retirement
funds. I’ve covered how staggering of a difference
this can make in the video I did a few weeks ago on how to stop wasting money which I’ll
leave a link to in the description if anyone’s interested in finding out more about that. Cutting back also means that you have an extra
dollar to put into your retirement funds, which can help you reach your goal that much
faster. However, the biggest potential con to this
defensive strategy is that you can only cut back so far. Now there are people who cut back way farther
than you would think possible, as little as $7,000-$8,000 a year, but as impressive as
that may be, there’s still a limit to how far you can cut back (and there’s an even
stricter limit on how much we can cut back in a healthy manner without putting ourselves
at higher risks for financial regression and spending sprees later in life). In comparison to the offensive strategy which
as I said is for all intents and purposes limitless. And let’s face it none of us wants to live
in destitution. I don’t think any of us really wants to have
just barely enough money to survive in retirement, even if it might seem like it some days for
some of us who really don’t like our jobs and just want to get out of it as soon as
possible, but in truth I don’t think that’s what any of us wants. If for no other reason than, if we’re honest
with ourselves, we would eventually realize that retirement, especially early retirement,
is long. For the first time since being a kid, you
have too much time on your hands and if you never have any money to do anything, if you
aren’t able to join your friends for any fun activities that cost money, it can become
quite difficult finding ways to enjoyably fill the days after a while. Sure there’s a lot of fun things that you
can do for free, but we could be talking about 50-60 years or more of living on that tight
of a budget. I don’t know, maybe I’m wrong, but that’s
not the life I want to live. So there’s only so much that you can cut back
and if you cut back too much the quality of life diminishes… Does that mean I think that playing offensively
is the superior strategy? Well, not exactly. I actually think that we’re asking the wrong
question. The question shouldn’t be which one is better
the question should be how can we pull off both? How can we find a way to cut back on our expenses
and stop wasting money while simultaneously generating more? Because in the end, that’s the best strategy. They offset each other’s weaknesses very well
and the same is true for enhancing each other’s strengths. There isn’t as much true risk to you and your
family if a business or side hustle fails if you’ve learned how to stop wasting money
and you’re living on less then you make at your job. And your means that you have to live below
are higher than they would be if you just played defensively because you have diversified
your revenue streams at least to some extent. In addition to that, since you’ve learned
to live on less by not wasting money, the extra money you’re generating is then able
to be put into your retirement accounts and help you achieve Financial Independence that
much faster. After all, it’s not really how much we make
that matters, it’s not even necessarily how much we spend that matters… it’s the
difference between the two. It’s how much we keep that matters. So, yes, continue to focus on your budgets
and other defensive tools, continue to learn how to stop wasting money on things you don’t
value. Never buy things with money you don’t have
because you’re trying to impress people you don’t even like. But also continue to research ways to diversify
your revenue streams not only so that you can make more money but also so that you can
be better protected in the event that life happens… Because let’s face it at some point life happens
to all of us. But that’ll do it for me today once again
if you enjoyed this video be sure to smash that like button if you haven’t already,
subscribe, and hit that Bell next to my name so that you’ll be notified of all my future
uploads. I generally upload every single Monday, and
if you have a friend that would be interested in this kind of content be sure to share it
with them and let’s really get this information out there and start our own Financial revolution.

40 thoughts on “Making Money VS Saving Money (Which Is MORE IMPORTANT?) | How to Financial Independence Retire Early

  • Before I watch the video, I'm going to guess that you argue saving is more important. It helps you to get used to living on a much lower, somewhat fixed, income, whereas earning more means you might be tempted to spend it. Now, let's see what your conclusion is, Daniel.

  • Awesome both are equal like the book "The Millionaire Next Door" explains, people didn't become millionaires only based on how much wealth they created. They needed to maintain it and keep growing.

  • I had figured that the answer would be why not do both. That's where my line of thinking is heading at least.

  • I plan to cut back on my early years and invest evry penny i save. So leater in life i can live comfortably.

  • You need both. A person can always outspend what they make but you also don't want to be a monk/hermit with nothing.

  • Good video. For me it was cutting expenses to what I felt was comfortable (probably more than most), to boost my savings rate easily. Now I'm in phase 2 which is finding a way to earn more money. Of course one could do both simultaneously, but this worked for me. I definitely agree that BOTH are equally important.

  • I just wanted to thank you for all these videos. Your really helping turn my life around. I am so proud of where I've gotten in myself and i dont think i could've done without your help. I really appreciate your work. Thanks again.

  • Hi Daniel, thanks for sharing the valuable information. Could you please cover, what is best method property or stock market for investing, thanks. Will await for the video on this.

  • You may not always control what you earn (plants close, business fail, jobs come and go, etc.) but you can always control what and how you spend.   Emergencies arise, so that is why having savings is the first plan in financial survival.   It doesn't matter if you make more money just to spend it…only if you save/invest it.  But really, it is neck and neck if you are steady employed and working your plan because you will attempt to do both.

  • It is essential to optimize both, but investing in a new biz or revenue stream will beat market returns in most cases. The catch is you have to survive the no profit startup period.

  • Awesome information, Daniel! We need both because we have nothing to save if we don’t create and make money. We make money for living and learn to spend them wisely but most importantly, save some for security and future purposes.

  • You need both obviously, but making money is clearly more important and superior. Why?
    1. It’s easier to save x percent of your income when you make more money. Saving 20% of your income when you make $30K a year can be a challenge where as saving 20% of your income when you make $300K a year is trivial. Because although your income is multiplied by ten, your expenses are not multiplied by ten. Even if you fall into lifestyle inflation and your expenses are five times as what they used to be, you still have plenty of money left over.
    2. There’s a clear limit to saving. So even if you have the best discipline in the world, on $30K a year you can only save a max of $30K. For making money there is no clear limit. You can always grow.

  • saving/investing is more important than what you make… I know people who made millions with a $60k/year salary and I know people who make over $100k/year and don't have a single dollar in the bank and live paycheck to paycheck with hundreds of thousands in debt

  • Both important, but there is an order in which things should be done. Getting your finances under control by reducing spending to below whatever your income level currently is at is the first step. I have never encountered someone who had a spending problem who was able to eventually earn enough to overcome that spending problem, because their spending was the problem, not their income. After you have that discipline in place, building wealth requires you to maximize your earnings over the course of your career. Just as I've never met a rich overspender, equally I've never met a rich janitor (although I suppose there may be a few, they're just extremely rare).

  • Take your money and make money from that money. Basically take the profits and reinvest into your business instead of taking the profits and spend on expensive vacations and luxury items.

  • It’s like my old football coach used to tell us.

    “You can have the best offense in the state. You can score 100 points in a game, but if they score 101, you still lose. However, if you have a great defense and manage to shut them out, worst-case scenario, you tie.”

    The same thing applies to personal finance. It’s not about how much you make; It’s about how much you keep. We’ve all heard of people who earn 7 figure salaries who are dead broke. But figure out a way to live for free? You could retire tomorrow, if you wanted.

  • Few people know what money is. Money is coined by the United States Treasury, gold eagles and silver eagles. Currency is not money. Computer credits are not money. Bit coin, credit cards, credit, are not money. Please explain and known the difference between money, a claim on the past and debt notes, a claim on the future. In debt notes the Dow Jones stock index is up from $1,000 in 1971 to $26,000 in debt notes. In real money, gold or silver, the Dow is up from $1,000 to $1,444 in 2019, up less than .7% a year, less than 1% in real MONEY. Please try to use reality, gold and silver, to measure reality. Currency does not measure reality. Currency is fake legally counterfeited currency. Federal Reserve debt notes ARE NOT MONEY.

  • Although both is important, a defensive strategy is more psychologically approachable AND attainable. 1) You already touched on this, but not everyone can raise their income and not everyone wants to. To gain money through starting a business is not applicable to every job, and requires a lot of management and leadership. In my country, there is a rather small income distribution. Most people with an average income can live more frugally without putting in more effort.
    2) The hedonic treadmill/that we simply tend to spend more if we earn more. We tend to spend more money not on valuable things but buying la Mer skincream instead of Nivea when studies show that they basically contain the same ingredients.

  • Como le hacen para que se vea tan facil hacer un dibujo y que desperdicio de dibujos los borran despues de dedicarle tan poco esfuerzo😑 quisiera hacer dibujos asi de facil como echarze un pedo de repente sin ningun esfuerzo

Leave a Reply

Your email address will not be published. Required fields are marked *