Last Updated on: September 20, 2023
A common advice on personal finance is to effectively cut our non-essential expenses so we can prioritize our needs over our wants.
While this is still recommended and remains solid advice, we must also remember that personal finance is personal.
It means that what works for me may not work for you and vice versa — simply stated, there is no such thing as a one-size-fits-all approach in personal finance.
So, how can we tell when cutting expenses is no longer enough?
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Why Do We Need To Cut Our Expenses in the First Place?
Cutting our expenses has its merits, especially for people with financial troubles. It is also a great practice to develop prioritization regarding our money.
When we cut our unnecessary expenses, our budget opens up to give way to more necessary purchases.
For instance, if you spend thousands on unnecessary purchases monthly in online shopping, yet you struggle to pay your rent, that is a problem.
Remember that the goal of cutting expenses is not just to deprive ourselves but to set our financial priorities in order.
Ramit Sethi of I Will Teach You To Be Rich has a great quote that summarizes how cutting back on some expenses doesn’t mean we can’t have nice things.
You should spend extravagantly on what you love and cut mercilessly on what you don’t. I don’t believe in cutting back on small purchases. I want you to spend MORE on the things you love.Ramit Sethi
Based on this quote, he essentially says that we can spend on things we love, but we need to cut down our unnecessary expenses in exchange.
For instance, I love running, and an important item that I need is a good pair of running shoes. In my case, I would rather spend more on buying a pair of running shoes than spend on other expenses.
I remember my mother becoming frustrated because I won’t buy new clothes. However, she doesn’t know that I spend my “clothing money” on my running essentials.
Another example is for those who love traveling or have pets. I think they can relate to how we skimp on things that other people consider important but spend extravagantly on the fur babies or activities we love.
When Is Cutting Expenses No Longer Enough?
While cutting expenses on unnecessary items and prioritizing the things and experiences we like is important, there are instances and situations when frugality won’t be enough anymore. Here are some:
A. When You’re Budget Is Dried to the Bones.
We can see how our money moves when we budget to identify if we have a healthy, positive cash flow.
So if you realize that the money going out is too high compared to the money coming in, you will need more than cutting your expenses, especially during high inflation.
We often read people’s sentiments that they want to save but can’t (much more, invest) even if they try because their salary is insufficient and can only accommodate their family’s essentials.
When this happens, you’ll need a different approach. More on that later.
B. When You Want To Improve Your Lifestyle.
We all want to improve our or our family’s lives by increasing our lifestyle, even for just a little. Unfortunately, it’s unlikely to happen if we have a negative or break-even cash flow.
This commonly happens to those living paycheck to paycheck, but it can also happen to frugal people. When we say “improvement,” it doesn’t mean the material aspect. It can also come in health, experiences, and convenience.
For instance, many salaried workers have a relatively slower salary growth compared to inflation and responsibilities, so the salary they used to enjoy may now only be enough for the essentials.
What To Do Next?
Personal finance has two levers we can work on — income and expenses.
So to have a positive cash flow, we can either decrease our expenses or increase our income – or both.
While both levers need our active participation, how much we can save or decrease our expenses is limited until we’re dried up. On the other hand, how much we can earn has almost limitless potential.
Here are the common ways:
A. Find a Side Hustle or Part-Time Job.
If you’re employed, finding a side hustle or a part-time job that you can do for an hour or two per day or on the weekends can increase your income.
Some common part-time gigs are freelancing, writing, buying and selling, insurance selling, and trading financial instruments. These can be done online and in the comfort of your home.
B. Find a Higher-Paying Job.
If you prefer to avoid taking another job on top of your regular job, you’ll need to ask for a raise or find a higher-paying job elsewhere.
However, while asking for a raise seems nice, the salary increase usually won’t be comparable to if you’ll apply to another company. For some industries, a single job transfer can double your salary.
Remember that there are a lot of opportunities in the job market, but you’ll need to find them and have the necessary skills to get better options.
The good thing is that plenty of jobs now accept applicants regardless of their educational backgrounds.
Cutting expenses is important in our personal finances, especially if we can remove unnecessary things from our monthly bills.
However, when the time comes when cutting your expenses is not enough, then you’ll have to find other ways to increase your income.
Just remember that how you handle your finances will reflect your priorities. God bless you.