I’m sometimes asked, “Which do you think is more important: saving money or making money?” They’re both important, equal factors in the wealth equation:

[WEALTH] = [WHAT YOU EARN] – [WHAT YOU SPEND]

Which is most important to you depends on your current financial situation.

If you have a good income, then the most important thing you can do is to control spending. If your family earns $100,000 a year and is unable to make ends meet, or is subsidizing an affluent lifestyle with credit, then it’s more important to scrutinize your spending habits than it is to make more money. Try the following:

• Track every penny that you earn and spend. This is an excellent way to change your behavior. The act of tracking your spending makes you more aware of your money habits. The key is to track everything, even the $2 you spend on coffee every morning. You want to develop money sense, an awareness of where all of your money is going.
• Reduce expenses. Find areas where you’re spending out of habit, and reduce these costs. For example, in 2004 I spent $200/month on books. Even I could see that this was foolish. I made a goal to cut my book spending in half for 2005. By using the library, I met this goal. My goal for this year has been to cut my book spending in half again, to $50/month. Because I’ve decreased my spending on books, I have money available for more important things, such retirement savings.
• Consider a budget. Budgets are not for everyone. (I do not keep a budget.) But for some people, they’re magical. They impose an order that helps to clarify their financial goals. If you know that external structure helps you, then examine your spending records to create a budget. (Check out the budgeting category for some ideas on how to make a budget that works.)

If, on the other hand, you don’t make much money, then the best thing you can do is to increase your earning power. If you’ve already reduced spending to the bone, then you must increase your income. Minimum wage sucks — no question — but there’s no reason you have to settle for a lifetime of low pay. The younger you are, the more chances you have to improve your situation.

• Get a second job. What’s worse than working one job? Working two jobs. But sometimes that’s the best option. Many of us have worked multiple jobs in order to earn enough to get by, or to save to improve our situation. You can too. But recognize that this is a short-term solution. Your goal should be to shirk the shackles of debt, or to escape minimum wage, so that two jobs are not necessary.
• Get a promotion. One way to break free is to move up in your current company. Hard work and a positive attitude pay dividends, and usually sooner rather than later. I have never seen an instance in which hard work and a good attitude have gone unrewarded, either through increased pay or a better position. Persevere.
• Get an education. Do not underestimate the value of education. This is the most important step you can take to increase your earning power. If you’re still in school, make the most of it. If you’re older, take classes in a field that interests you. After nine months of computer classes on evenings and weekends, I was able to land a programming job that paid $25/hour.

If, like most people, your family is middle-class, then it’s important to work on both earning and spending. Live a frugal lifestyle, but also take steps to improve your earning power. If you can cut spending while increasing income, you’ll be startled by the change in your financial situation. And remember: frugal tendencies help everyone — both those with high incomes and those with low incomes.