I am following several blogs on money and related matters; these are mainly American so not everything discussed is relevant to our British, or for that matter European, situation. Sometimes when I read on matters of personal finance, finance generally and finance management interesting questions pop out. So, I decided that these deserve a discussion here – they are brain teasers because answering or deciding on a side may involve some research, knowledge and certainly thinking. These do not go beyond what we usually do when faced with important and potentially life transforming choices.

The Money Principle brain teaser for this weekend is the following:

“Only the poorest and the richest can easily increase their income.”

This is a statement made by Jacob from Early Retirement Extreme . His point is that if one wishes to generate sufficient wealth to retire early this is much easier to achieve by reducing one’s expenditure than by increasing one’s income. Jacob himself built sufficient wealth to retire in his thirties – by saving 75% of his income for 10 years. This, as he points out, is also a very good training in frugal living: he lives in an RV and spends less than $10,000 per year.

Do you think that Jacob has got it right and that people ‘in the middle’ cannot easily increase their income?

I disagree with Jacob and think that anybody, not only the richest and the poorest, can increase their income. I not only think that – I know it and we have tested it. Increasing our income is what my husband and I have been doing and I am certain that we are not among the poorest but we are not that rich either. During the last eighteen months we have increased our earnings by about forty percent; it is true this is ad hoc rather than regular income. It is an increase nevertheless and a substantial one at that.

I believe that consistent wealth generation requires both reduction of expenditure and increase of income. Furthermore, these should be in balance – extreme thrift robs us of life experiences just like extreme work.

What do you think?