Some believe the key to financial success is frugality. The problem is you probably don't want to live like a college student for the rest of your life. Yes, you do need to find sustainable ways to save more money. But the way to reach success is twofold –– you also need to earn more.
I love that Gen Y is eager to learn about money and asks questions like, "How can I be financially successful?" If you turn to personal finance blogs for answers, you find many people saying you need to be frugal and reduce your spending.
Spending less than you earn is the fundamental of good money management. Doing so keeps you out of debt and creates a surplus of money, which is what building wealth is all about.
If you invest wisely your savings in your 401(k) and Roth individual retirement accounts, compound interest starts working in your favor. The earlier you start putting money into a retirement account, the more interest you accumulate over time. That's why you should not only save, but start saving and investing now.
Saving money, as powerful as it is, comes with limits. Not all of us can live well on very little. Financial success should not mean we "live poor comfortably," as personal finance blog Get Rich Slowly puts it. It's great if you can live frugally and truly need less to make you happy. Every expense that you can cut means more financial freedom for you. Still, you can only save as much as you earn.
If you want to reach your version of financial success sooner, you need to earn more, too. This isn't as popular a concept as saving because boosting income is much harder to do. Most people don't feel like the amount of money they earn is within their control. 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 earn as much as you want.
Of course, getting there is not as easy as snapping your fingers and watching the numbers on your paycheck increase. You have to do more than 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 sideline job — what I call a side hustle — or monetize one of your current hobbies. You might want to consider diving into entrepreneurship to increase income and diversify where it comes from.
When you earn more money and maintain minimal expenses, you create a big gap between what you spend and what you bring in. You can 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 and earning more money are both positive actions you can take to improve your finances. You should do both if you want to reach financial success.
Sophia Bera is a Certified Financial Planner and founder of Gen Y Planning.