The following blog is by Sophia Bera originally published in her website Gen Y Planning.
Here’s what I love about Millennials: our generation wants to learn about money. Young professionals want to know how to be better with money than their parents and their peers. They want to avoid making the same mistakes, and they want to ensure their financial future is secure.
I love that Gen Y is eager to learn, and that my generation asks questions like, “How can I be financially successful?” If you turn to personal finance blogs for answers, you’ll find many people saying you need to be frugal and reduce your spending.
And while living like a college student as long as possible to help you repay student loan debt and save for retirement is a good tip, you likely don’t want to be doing it the rest of your life. There should be other actions you can take to meet your financial goals, right?
Right! My answer to the question of how to reach financial success is two-fold. Yes, you do need to find sustainable ways to save more money – and you also need to work to earn more money.
Why You Need to Save More Money
Spending less than you earn is one of the fundamentals of good money management. Doing so keeps you out of debt and creates a surplus of money. At its most basic level, that’s what building wealth is all about: having a surplus of money to cover your expenses.
You build financial security every time you put money into your savings. And if you invest money wisely in your 401(k) and Roth IRA, you allow compound interest to start working in your favor. That’s why it’s important that you not only save, but that you start saving and investing now.
It’s great if you can live frugally and truly need less to make you happy – every expense that you can eliminate, or cost you can cut, means more financial freedom for you. Living well on less is like a double-edged sword (in a good way): if you can live well beneath your means, you can save and invest more money and you can reduce the amount of money you need to live happily in the future.
In other words, if you don’t feel the need to live in a million-dollar house with a four-car garage and spend hundreds of thousands of dollars per year, it’s going to be a lot easier for you to save and invest for your version of a great life – which may look like having minimal possessions to tie you down so you can travel the world-full time instead.
That’s just an example, but you get the point. Expensive lifestyles take a ton of money to maintain. If you can align your spending with your values and eliminate the expenses that don’t matter to you (and save that money instead), you’ll reach your version of financial success sooner.
But saving money, as powerful as this action is, comes with limits. Not many of us can figure out ways to live for free and save 100% of our income. And as personal finance blog Get Rich Slowly put it, the goal is to grow wealth and enjoy it. Financial success should not mean we “live poor comfortably.”
You need to save money – and you need to earn more of it, too.
Why You Need to Earn More Money
Earning more as a way to build wealth isn’t as popular of a concept, and that’s because it’s much harder to do. Anyone can learn how to pinch pennies and live on less. You’re in control of your own budget, and you can take action to eliminate expenses and live as cheaply as you want.
Most people don’t feel like the amount of money they earn is within their control. After all, if we all got to decide how much money we made, wouldn’t we all be crazy rich?
But here’s the thing: theoretically, your earning potential is unlimited. Seriously! There’s no rule that states your income is capped at a certain amount. You can only save so much, but technically, you can earn as much as you want.
Of course, it’s not as easy as snapping your fingers and watching the numbers on your paycheck or in your bank account increase. You have to do more that wish for it. You have to work for it.
You need to negotiate the next time you seek out a new job, or are due for a pay raise at your current position. You can establish your own side hustle or monetize one of your current hobbies. You might want to consider diving into entrepreneurship, where you can be the boss and not only increase your income but diversify where it comes from, as well.
When you earn more money and maintain minimal expenses, you create a big gap between what you spend and what you earn. It allows you to invest more – and that’s your ticket to financial success. Earning more fast-tracks your financial goals, allowing you to get out of debt and accumulate wealth faster.
Saving more money and earning more money are both positive actions you can take to improve your finances – and you should work to do both if you want to reach financial success.
About the author: Sophia Bera, CFP® is the Founder of Gen Y Planning and is a financial planner for Millennials. She’s passionate about helping people in their 20s and 30s across the with their money. She is a contributor for AOL’s Daily Finance website and has been quoted on various websites and publications including Forbes, Business Insider, Yahoo, Money Magazine, InvestmentNews, Financial Advisor magazine, and The Huffington Post. She was named one of the “Top Financial Advisors for Millennials” by the website: www.MoneyUnder30.com. Sophia is a sought after speaker and presenter and is an active member of the Financial Planning Association. In her free time, she enjoys performing as an actor/singer and traveling the world with her husband, Jake. Follow her on Twitter @sophiabera or sign up for the Gen Y Planning Newsletter to stay up to date on financial articles geared towards Millennials.