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Stop Living Short: Save More, Earn More or Both?

Though 61 percent of Americans are still unfamiliar with personal finance, expert interest in the subject is booming. Blogs have become overwhelmed by articles encouraging readers how to save more, budget better or spend smarter, all in an effort to ensure consumers are equipped with the knowledge to manage their money wisely. Sure, there may be an unlimited number of ways to stretch a dollar, but who says you have to stretch it at all?

Recently, an increasing amount of financial experts have begun to advise earning more, rather than saving more, as the solution to achieve financial freedom. This philosophy embraces the expensive economy as a challenge to use skill and smarts to stay out of debt, though this strategy isn't right for everyone.

Which one is right for you?

Saving More

Saving comes in many forms, from contributing to a rainy day fund to budgeting for regular expenses, and is often the most trusted way to help consumers reach a financial goal.

"You have way more opportunities to focus on saving money than you do to worry about earning more money," says personal finance expert Lynnette Khalfani-Cox. "The average person has something like a dozen or more financial choices to make every single day about whether they should save their money or spend it."

You can save without significant sacrifice by...

  • Skipping the expensive coffee drink or take-out lunch. Though it may save no more than $5, doing so once a week can save $260 a year.
  • Taking public transit rather than cabs. Just one less cab ride per week can save upwards of $10-15, which can add up to almost $1,000 over the course of a year.
  • Buying in bulk. Paper products, non-perishable foods and bottled beverages can save you anywhere from 40 to 60 percent. Cereal, which can save 20 cents a bowl when bought in bulk, offers annual savings of almost $300 if eaten daily by a family of four.

And the list goes on. However, infinite ways to save isn't the only reason Khalfani-Cox attests to the importance of saving.

"Saving money is a discipline," says Khalfani-Cox. "The more that you can be focused on saving money, the better financial manager you'll be."

Khalfani-Cox learned that lesson the hard way after finding herself in more than $100,000 of credit card debt almost a decade ago. Even with a healthy 401(k) and a six-figure salary, her lavish spending habits soon spiraled out of control. She maxed out on her cards, and the creditors cut her off.

It took three years for Khalfani-Cox to dig herself out of debt. Fueled by her own personal success story, "The Money Coach" has now appeared on everywhere from Oprah and Dr. Phil to CNN and MSNBC, teaching consumers how to manage money and avoid debt altogether. She is also the author of the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom, which shows consumers already trapped in debt how to fix their finances.

Unfortunately, there is a limit as to how much you can cut back on. Experts in favor of earning more emphasize limitless earning potential as a hefty advantage that makes it a more attractive option, but is it really easier to earn $1,000 than to save $1,000?

Earning More

Earning more is often familiarized with indulgence, living lavishly or careless spending, but this doesn't always have to be the case.

In fact, Ramit Sethi agrees that managing your money is still important. It's just a lot easier to manage with a little extra income.

Sethi, New York Times bestselling author of I Will Teach You To Be Rich, criticizes the "classic advice of cutting back" for being a short-term solution.

"Most personal finance experts love to talk about cutting costs," says Sethi. "Not only does the advice not work, but even if it did work, $3 a day doesn't add up to much!"

Instead, Sethi highlights an obvious, yet neglected, strategy to boost income: getting a higher salary. Whether achieved by improving your skills, switching jobs or switching industries, there's only one way to find out what it'll take. Ask.

"If you don't know what it takes to get a higher salary, there's one person who does know: your boss. Negotiating a single $5,000 raise early in your career would be worth more than $1 million over your career," says Sethi. "How many lattes is that worth?"

It sounds swell, although relying on a raise isn't always a realistic option.

"Everybody wants to earn more, and it's good to earn more money, but in the end, it's not about what you make. It's about what you keep," says Khalfani-Cox.

Doing Both

Ultimately, experts say the strategy you align with depends less on a preference and more on a mindset. Savers generally relish security and stability, while earners delight in taking risks, making the decision to save more versus earn more seem mutually exclusive.

But is it possible to do both?

Absolutely. Consistently budgeting can require time and dedication, but spontaneously deciding not to stop for a latte on the way to work is simple. It requires little to no effort. The same goes for earning a little extra cash. The Internet now makes it easy to find a new home for items that no longer fit or that are merely collecting dust around the house.

While these solutions may seem insignificant in the scheme of things, the real solution lies in the affect they have on you, not on your finances. Regardless of the strategy you choose, becoming a conscious decision-maker is the first step toward financial freedom.