When I first started learning about personal finance, I encountered two core principles that were universally acknowledged: make money and save money. These two principles form the foundation of financial success, and understanding them deeply can significantly affect how we manage our wealth. In this article, I’ll break down these two principles, their importance, and how you can implement them in your life. Whether you’re a beginner or have been navigating your financial journey for some time, grasping the full extent of these concepts can guide you toward greater financial freedom.
Table of Contents
Principle 1: Make Money
Making money is, at its core, about generating income or increasing your financial resources through active efforts. This principle isn’t just limited to earning a paycheck from a job. It encompasses a broad range of activities, including starting a business, investing in stocks, real estate, or developing side hustles. The more you make, the more you can use to fund your savings, investments, and expenses.
Let’s break this down with an example. Suppose I have a job that pays me $50,000 a year. To increase my earnings, I could pursue additional income streams. These could include a freelance job, launching an online store, or even monetizing a hobby. If I earned an additional $10,000 from these efforts, my total annual income would be $60,000.
I could make money by increasing my salary or diversifying my income sources, and I should always look for ways to optimize my earning potential. For instance, learning new skills, seeking promotions, or switching to higher-paying opportunities are strategies I can apply.
Example: Let’s calculate the potential earnings with multiple income streams.
| Income Source | Annual Income | Total Income |
|---|---|---|
| Primary Job (Full-time) | $50,000 | |
| Freelancing (Part-time) | $10,000 | |
| Online Business (Yearly) | $5,000 | |
| Total Earnings | $65,000 |
As shown, by adding just two additional income sources, I increased my earnings by $15,000. While this increase in income can help meet my financial goals faster, it’s not just about making more money but about how I manage and allocate that income effectively.
Principle 2: Save Money
Saving money is the second essential principle. It’s about setting aside a portion of what I earn for future use, rather than spending it all. Saving provides a cushion against unexpected expenses and ensures I can reach my long-term financial goals, such as buying a house, paying for education, or building a retirement fund.
When I save money, it’s important to prioritize the right areas and avoid impulsive spending. Saving doesn’t necessarily mean living frugally; it means being mindful of how much I need to spend and how much I should allocate for future purposes.
A simple example: If I make $60,000 per year and decide to save 20% of my income, I would put aside $12,000. This savings could be used for an emergency fund, future investments, or long-term goals.
Example: Let’s look at saving with a budget.
| Expense Category | Annual Amount | Savings Goal (20%) |
|---|---|---|
| Housing | $18,000 | |
| Food & Groceries | $6,000 | |
| Transportation | $4,000 | |
| Entertainment & Leisure | $2,000 | |
| Total Expenses | $30,000 | |
| Total Income | $60,000 | |
| Amount Saved (20%) | $12,000 |
As seen, saving 20% of my income results in a solid $12,000 per year in savings. The beauty of saving is that even small changes in spending can lead to big differences in savings over time.
Comparing the Two Principles
While both making money and saving money are crucial to financial success, they operate differently. Making money is proactive, often requiring more effort, risk, or entrepreneurial action. Saving money, on the other hand, is largely about being disciplined and mindful of how I spend the money I already have.
Here’s a comparison to illustrate how both principles work together:
| Principle | Description | Key Focus | Example |
|---|---|---|---|
| Make Money | Increase your income through jobs, investments, or side gigs. | Growth of income | Earning $60,000 a year by working and freelancing. |
| Save Money | Set aside a portion of your earnings for future use. | Disciplined spending | Saving $12,000 from a $60,000 income. |
Both principles are vital. Making money provides the raw material—income—that I can save, invest, and grow. Saving money ensures that I don’t squander my hard-earned resources and that I have a cushion for future goals.
Making Money vs. Saving Money: Which is More Important?
Now, you may wonder which of the two principles is more important. The truth is that they complement each other. Making money without saving can lead to unnecessary spending, while saving without making enough money limits my ability to reach big financial goals.
Let’s imagine two scenarios:
Scenario 1: Making Money Without Saving I might earn $100,000 annually, but if I fail to save or invest any of it, I might find myself in financial distress down the road. I could face unexpected expenses, or I might not be able to retire comfortably if I don’t put some money aside. In this case, making money is not enough.
Scenario 2: Saving Without Making Money On the other hand, if I only focus on saving money but don’t have a sufficient income stream, my savings will be limited. Even if I live frugally, my financial growth will be constrained. Saving without making enough money can mean that I won’t be able to fund major expenses like buying a house or starting a family.
The ideal scenario combines both principles. I need to earn enough to support my savings goals, and I need to save a significant portion of my income to secure my financial future.
How I Can Implement These Principles
Understanding these principles is one thing, but implementing them in my life is where the real work begins. Here are a few ways I can integrate both principles:
- Diversify My Income Sources: I can look for ways to earn more by starting a side hustle, investing in stocks or real estate, or learning a high-paying skill. This will help increase my earnings.
- Create a Budget: By setting a budget, I can ensure that I am saving a percentage of my income every month. I can start small, perhaps saving 10%, and increase it as I earn more.
- Invest Wisely: Saving money is important, but making that money grow through investments is key. I can consider long-term investments such as retirement accounts, stocks, or real estate that offer passive income and capital appreciation.
- Focus on Financial Education: The more I learn about personal finance, the better I can manage both making and saving money. Financial education helps me make smarter decisions and avoid costly mistakes.
Conclusion
In summary, the two basic principles of economic success—making money and saving money—are interconnected. Making money provides the fuel for financial growth, while saving money ensures that I don’t burn through that fuel too quickly. Both principles require effort, discipline, and ongoing attention. I need to actively seek ways to increase my income and save a portion of what I earn.
By applying both of these principles, I can create a solid foundation for financial success, no matter where I start from.