By: Roshawn Watson

I’d like to live as a poor man with lots of money. – Pablo Picasso

There are plenty of millionaires who attribute much of their wealth to frugality, but the fact remains the average income of millionaire households is approximately $350,000 (~5x the national average), so it is certainly not frugality alone that accounts for building wealth.Today, we explore the loaded question: is it better to be frugal or to be a high earner?

What’s Your Potential?

What would you attempt to do if you knew that you could not fail? In so many cases, your answer will account for a mere fraction of your potential. Ultimate Guide to Becoming a Doer

We all have different earning potentials. General income trends are just guidances that fail to account for the unique ways you may leverage your skills, abilities, and passions that go beyond your education, profession, gender, race, and socioeconomic status. If your potential could be fully-characterized by a mere formula, believe me, it would already be marketed and packaged for you to buy for $5.99. We know that’s not the case. For example, an ex-convict who has much trouble speaking (3rd grade education) decided he didn’t like his odds finding solid traditional employment, so he embarked on several entrepreneurial endeavors and earns in excess of $30,000 per month. I’m sure plenty of people wrote him off, but that didn’t stop him from finding his niche.

It is unfortunate when people retreat to cutting lifestyle as their only way to build wealth because they have all but written off increasing their earning potential. Considering that most people don’t meaningfully increase their income by chance, if you aren’t deliberate about increasing your earning power, it may be difficult and lengthy to manifest.

Are You Really Frugal?

The best offense is a good defense.

Frugality deals with obtaining value from your resources (such as money). Perhaps the most derisive aspect of frugality is that value is subjective. What’s frugal to you may be wasteful to me and vice versa. It is somewhat ridiculous for the “frugality police” to get on their soapboxes deriding anyone who spends his or her money differently. Having different values doesn’t mean that someone is wasteful per se. The issue is more complex. For example, changing your own oil can be frugal. However, if one’s argument against doing so is “my time is worth more than the cost to have someone else change it for me, so I would rather spend my time in my areas of core competency,” then how is that not frugal? After all, he is obtaining maximum value from his resources.

Interestingly, most millionaires are frugal but are not necessarily “first-cost” sensitive. Instead, millionaires are “life-cycle-cost sensitive,” so the total costs rather than upfront costs are most important. The initial sticker shock of paying someone to do tasks you could do for yourself or paying extra for higher quality products or services is often deceptive, as the total costs of going the “expensive” route may indeed be less. Additionally, imagine the profound life-cycle benefit of continually investing time in improving your professional credentials, personal brand, knowledge-base, and network instead of spending your time doing all repairs and maintenance work yourself. Simply put, just because you can doesn’t mean that you should. This is why the large majority of millionaires are not do-it-yourselfers! (For more characteristics of the wealthy, please check out millionaire facts)

True frugality is not about being penny wise but pound foolish.

The Power of Earning More

Of course, earning more also gives you many options. First and foremost, it is mathematically easier to hit certain financial goals when you earn more (all other things being equal). Second, earning more may yield more flexibility with your time. For example, rather than increasing your personal production through sleep deprivation, neglected relationships, and other sacrifices, you can improve your production capacity. This may mean bringing someone else on your team to carry some of the burdens or using technology that enables you to do more with less. While this may involve added costs, you can still come out ahead financially provided that gains from the increased production capacity exceeds the added costs of hiring help or paying for technological advances. Don’t spend so much time trying to be productive that their is nothing left to give, which is why Stephen Covey noted that highly effective people are mindful of their production versus production capacity balance.

With our technology, with objects, literally three people in a garage can blow away what 200 people at Microsoft can do… Corporate America has a need that is so huge and can save them so much money, or make them so much money, or cost them so much money if they miss it… Steve Jobs

Concluding Remarks

In the end, the debate over frugality versus increasing income will continue, probably unnecessarily so because earning more and being frugal are not mutually exclusive. Most millionaire households obtain their financial footing through embracing both frugality and earning more. For example, just as affluent households are more likely to use coupons (frugal activity) compared with less affluent households, millionaire households have average annual incomes that place them in or near the top 1% of earners (~5x the average American household). The distinction of whether frugality or earning power contributes more to overall economic success ultimately depends on the economic productivity of the household, which varies. Recall, “Toyota Millionaires” differ from “Mercedes Millionaires” both in terms of their degrees of frugality and economic productivity, yet both are considerably more frugal and economically productive than the general population. Perhaps rather than determining which is better, the real question is whether your household financial practices will help you reach your financial goals.

Lastly, if you like this article, please subscribe to my FREE email updates or RSS feed (reader), Retweet it, Like It on Facebook, Tipd it, Fark it, Stumble it, and tag it on Delicious. Also, click here to receive my eBook for FREE.

Related Posts

Toyota Millionaires Versus Mercedes Millionaires

7 Surprising Facts About Millionaires

The Nastiest Habit (That We All Have)