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Grow Your Income or Spend Less to Reach FI in 2024?

Baptiste Wicht | Updated: |

(Disclosure: Some of the links below may be affiliate links)

When trying to reach Financial Independence (FI), the best way to reach FI faster is to increase your savings rate. Your savings rate is the amount of your net income that you can save.

For increasing your savings rate, you have two options. You can either spend less or grow your income. These two options will directly increase your savings rate. And as a result, they will speed up your road to Financial Independence and make you reach FI faster.

If you spend less, you must accumulate less money to be financially independent. And if you earn more, you will reach your goal faster.

So which of these two options should you focus on to reach Financial Independence? There are some advantages and disadvantages to each of them. But, they do not accelerate your path to FI at the same rate.

Find out what you should do to become financially independent.

Reach Financial Independence

Being financially independent means you do not rely on your job to live. There are several ways to reach Financial Independence. But basically, it boils down to either:

  1. Have enough side income to cover your expenses
  2. Have enough net worth to be able to withdraw money for your expenses

The second case is the most common one. You must reach a specific target net worth (your FI number) to become Financially Independent. And once you have reached this number, you can withdraw money regularly to pay for your expenses.

Your target net worth is based on your current expenses. So, if you reduce your expenses, you will directly reduce the amount of money you have to accumulate.

And if you increase your income, you will reach faster your target net worth. So, both options will have the same effect in the end. So, what should you focus on?

Growing your Income

The first option is to increase your income to reach your goals faster.

There are several ways to grow your income. The most common way is to get a raise or a promotion at your primary job. You can often grow your career a lot more than people think. You could also change the company or your job to grow your income. But it may not be easy to increase your income career. It may take a lot of motivation and work to get a bigger salary. And some jobs have a higher potential for income appreciation than others.

Another way to increase your income is to invest in real estate. Depending on how you invest, this could be some passive income. This new income is simply added to your income.

Or you could start a side hustle. There are many of them. I am not a big fan of side hustles. Generally, they take a lot of time, and some do not pay that much when considering your time. I do not consider Airbnb as a side hustle. It is just real estate investing. You just need to make sure you are side hustling legally.

Some people also consider dividend income as a good source of passive income. Many people want to cover their expenses with dividends. Or simply reach FI by accumulating money by reinvesting the dividends.

Some people also use their blogs to reach FI. A blog is a somewhat passive income. But it is probably closer to entrepreneurship than real passive income. It takes a lot of time. For me, I do not think I will ever make enough from this blog to help towards FI. But this can work for some people.

Finally, you can also grow your income by becoming an entrepreneur. You can start your own company. If you are successful, you can make much money with your own company. Of course, this is also a risky course, and it may well end up without money.

Even though having a significant income helps, it is not necessary to earn a considerable amount of money to retire early. I found a nice example of people financially independent on a modest income. Retiring early without a very high income is possible!

Extra income is different from your primary salary. Your main income will not be available after retirement. On the other hand, if you are generating some extra income, you may still generate it after retirement. Such extra income can go a long way toward helping you retire early.

Example of increased income

We will see how this works with an example to reach FI. We will assume you are spending 4000 and getting 5000 per month. You have a savings rate of 20%. For simplicity, you have no net worth to start with. Assuming a Withdrawal Rate of 4% and an annual Return on Investment (ROI) of 8%, you will need 28.5 years to reach Financial Independence.

So, if you manage to grow your income to 5500, you will reach FI in 23.6 years. If you grow it to 6000, you will only need 20.6. And if you go to 7000 monthly income, you will be FI in 17.2 years.

As you can see, the first 1000 extra income will save you more years than the next 1000. This phenomenon is called diminishing returns. The years you save are getting lower and lower, the more money you manage to grow your income. It should not prevent you from growing your income. You just need to be aware of this important fact.

Problems with growing your income

There is a risk when you are growing your income. It is lifestyle inflation. Very often, when people have more money each month, they spend more money. This fact is somewhat logical. But if your goal is to reach FI and retire early, you should be very careful about lifestyle inflation. If you grow your income and grow your expenses at the same time, you will not reach FI faster. You may even not be able to reach it.

That does not mean you cannot spend any of your new income. But if you spend all of your new income, you will be left in a worse situation than before. You should spend your raises responsibly.

There is one other thing that is important when growing your career income. It will help you reach Financial Independence faster. But it will not help you once you are financially independent if you retire. Indeed, you will not have this increased income anymore. It is an essential limitation of increasing your primary income.

On the other hand, this limitation is not there with extra income. If you can keep some income after your retirement, you can cover some of your expenses. You will have less money to accumulate.

And do not forget about taxes. The more you grow your income, the higher your taxes will be. If your marginal tax rate increases, every extra money you get will be worth less than before. I do not say that this should prevent you from earning more. But this is something you should be aware of.

Spend less – Be more frugal

The other thing you can do is reduce your expenses.

By spending less money each month, you will increase your savings rate. Moreover, this will also reduce the total amount you need to reach Financial Independence. Doing so has two advantages. You will reach FI faster since you need less money, and you will also reach it faster since you will save more money each month.

There are many things you can do to spend less money. You can cut back on the bills you do not need. Or you also be more frugal with your food budget. You even can change for a small apartment or smaller house. You can focus on every expense on your budget and check if they are essential.

Example of saving less

We can take the same example with 4000 monthly expenses and 5000 income, and 28.5 years to reach FI. If you reduce your expenses by 500 per month, you will need 22.5 years. If you cut it to 3000 per month, you will only need 18 years. So reducing your spending can make a huge difference.

You can see the same phenomenon of diminishing returns in reducing your spending. However, you can also see that reducing your spending by 500 has more impact than growing your income by the same amount. Mathematically, it is better to spend less than to increase your income.

Limits to reducing your expenses

However, there is something important about lowering your expenses.

There is only so much you can do. If you are putting a lot of effort into it, you can reduce it a lot. But some people will get stuck when they cannot spend less without reducing their quality of life.

This point is different for each person. Some people are willing to live with very little to retire. On the other hand, some people are not willing to go very far. But once you reach that point, the only way to reach FI faster is to grow your income. On the other hand, growing your income is almost limitless. Of course, it will not necessarily be easy.

Finally, there is something that not everybody is thinking about. First, the reductions you make to your expenses should last through retirement. If you cut your expenses low, you must be ready to live at this low level. And do not forget about something fundamental. You will have much more free time after retirement. If you plan to travel more or if you plan to do new things, you may end up spending more in retirement than when you are working.

Spending less is great, but only spending less will make it very difficult to become financially independent. You should not forget about your income. Too many people forget to try to increase their income.

Doing both to reach FI

If you are motivated to reach Financial Independence, you should not only focus on one. You should grow your income while reducing your expenses. Doing both is the fastest way to reach FI.

Once you have reached the limits of reducing your expenses, you need to work on increasing your income. At this point, you should make sure of not to grow your expenses to avoid lifestyle inflation. That way, you will reach FI as fast as possible.

We can use our example one final time. You spend 4000 each and get 5000 monthly income and 28.5 years to reach FI. If you increase your revenue by 500 and reduce your expenses by 500, you will only need 19.7 years. You just saved yourself almost nine years! If you grow your income to 7000 with 3500 monthly expenses, you will only need 14.3 years. You just cut your road to FI in half!

There is no reason not to try to do both of these things together. They both have their limits. But together, they work better than only one of them at once.

And I would also like to emphasize that generating some income while retired can be of great help. Dividends will help, but you should have more than dividends. If you have some real estate properties or some online business, you can improve your Financial Independence state.


The easy answer to whether you should spend less or grow your income is that you should do both!

To summarize, growing your income is an excellent way to speed up your path to Financial Independence. You just need to be careful not to increase your expenses as well. Spending less will also speed up your path to FI. Moreover, it will also make your life easier once you are retired. Mathematically, reducing your expenses is better to reach FI than growing your income. However, there is a limit to how low you can get your monthly expenses. After this limit, increasing your income makes more sense.

I think you should first focus on having a sound budget. Once you feel your budget is in control, you should focus on growing your income. But both are important. Do not consider your expenses at a perfect level. There is always something you can do to improve your budget. And do not consider your income at its peak. It is also unlikely to be true.

If you want to start growing your income, I wrote about great ways to increase your income. Or, if you prefer to start by cutting down your expenses, you can start by lowering your food budget.

It is also important to note that your expenses and income are only two of the three axes of personal finance. You should not forget about investing.

What do you think? What do you focus on? Do you prefer growing your income or reducing your spending?

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Photo of Baptiste Wicht

Baptiste Wicht started in 2017. He realized that he was falling into the trap of lifestyle inflation. He decided to cut his expenses and increase his income. This blog is relating his story and findings. Since 2019, he has been saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

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14 thoughts on “Grow Your Income or Spend Less to Reach FI in 2024?”

  1. Great post and I also agree with your thoughts on reducing your spending first, where possible and practical. Reducing your spending sets you up for great life-time habits that build wealth.

    WRT increasing your income, I’ve found a focus on “recurring” revenue to be the best way to go. Investing in rental property has been a winner for us over the past few decades. Initially, it was a lot of work but well worth the effort. The income keeps coming, and coming and the equity keeps growing and growing. There are numerous ways to create recurring revenue in addition to rentals.

    Another winner has been cutting our expenses by obtaining new credit cards year after year that pay sign-up bonuses and above average cash back on things we buy anyway (groceries, gas, etc.). We average about $1,000/year in returns using the tactic in conjunction with getting new online savings accounts (year after year). These accounts also pay new account sign-up bonuses.

    In less than two hours, we set up a new online saving account this month and we’ll make ~$800-$1,000 by the end of the year; $500 within the next two months guaranteed bank deal. Our return (recurring revenue in essence) will be 5.4% for $15k of our emergency funds. There is no stock market risk, just move funds around. I posted the details on how we do it on my blog for those interested; – posts on credit card strategies and emergency fund management for higher returns.

    Again, great post and I appreciate seeing you’ve done the math to support your observations. Thanks!

    1. Hi Greg :)

      Thanks a lot :)

      I am still not set in investing in real estate even though I do not doubt that there is substantial money to be made. I will probably start this year but with crowd-investing.

      I wish we had better credit cards in Switzerland. The offer here is pretty terrible. It would be interesting to use these to generate some extra revenue. But unfortunately, the best strategy to optimize credit cards here is to minimize the fees. Congratulations on making it work so well, it is very interesting to read about that :)

      Thanks for stopping by and sharing all of this :)

  2. Awesome post! I love how you outlined the pros and cons of both approaches and concluded that growing income AND reducing spending is the best path to achieve F.I. at a quicker rate.

  3. Yes all has to be in alignment, I gues, spending and increasing income, otherwise you fall in a ‘lifestyle- addicted’ way of splurging.

    What also is a interesting aspect in FI is a goal is the mindfulness to think before spending.

    Looking for the next post!

  4. Why is it that, as soon as we start making more, we start spending more? I got a promotion at my job recently and have noticed I spend more, not too thrilled with myself. I’m trying to get back to where I was beforehand with my spending, but for some reason some thing comes up. I think your post is great, didnt mean to rant too much.

    1. Hi doptionseller,

      It was the same for me when my salary started to improve while I was still doing my Ph.D. I was spending more and more every year. It was getting out of control but I did not feel it was wrong.
      I think it’s simply natural to do so. It is the contrary that is difficult! Fighting lifestyle inflation is easy to say but very difficult to achieve! It takes a lot of self-control.

      Thanks for stopping by :)

  5. I agree with you that the best option is a combination of both earning more and spending less.

    However if I had to choose spending less is always the better option. As you also pointed out because of progressive tax codes every extra dollar you earn is taxed at your highest marginal rate. For me that means I get to keep at most 63 cents for every dollar I earn (I live in a income tax free state but those who don’t get another bite out of it).

    Every dollar I don’t spend reduces my portfolio need by $25 using the 4% withdrawal. Plus that dollar is an after tax dollar so I get the full amount

    1. Hi Xrayvsn,

      Yes, if it is possible, there is more power in reducing expenses. As you said, every dollar you do not spend is a dollar you get. But every new dollar of income is only about 70 cents of money that you get.
      And as you mentioned very correctly, you can count each of these dollars not spent out of your retirement needs :)

      Thanks for stopping by!

  6. The after tax aspect of reducing spending cannot be underemphasized in my mind. My own favorite view is to kill the ongoing bleeds. Try living with a lower data package on cell phone, no Netflix, no cable. If you can’t live without it then add it back. If you can, those monthly cash outflows add up to a TON

    1. Hi FatTailedAndHappy :)

      You are right about taxes! It is very important. And most people do not take this into account!
      Small recurring expenses can add up to a ton of money by the end of the year indeed! It is very important to try to cut them as much as possible. There is no point delaying to do it.

      Thanks for stopping by!

  7. I agree. Everyone needs to get a grip on their spending first. Once you’ve got spending and lifestyle inflation under control, then put all effort into growing income. Lots of people ignore the first part and they kept spending more. It’s really hard to cut back once you’re used to it.

    1. Hi Joe,

      Yes, it is very difficult to get back to some frugal life after you have inflated a lot your lifestyle. And it is very difficult to retire early if you have extremely high expenses.

      I am still working towards reducing my expenses more. But next year, I am going to try to increase my income as well.

      Thanks for stopping by and keep up with the good work on your blog!

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