A new way to save

Hand holding paper currency.

Tess Vigeland: Warren Buffett is also known for living a fairly ordinary lifestyle. He's been in the same modest home in Nebraska for decades. Though, admittedly, he does also have his own private jet.

But he's not a spendthrift. You might even call him frugal. That's a word that's enjoyed something of a renaissance the last couple of years. But commentator Ramit Sethi wants you to forget what you've been told about the best way to save money.

Ramit Sethi: Have you ever noticed that personal finance experts love lecturing Americans about what they can't do with their money? They say things like: "Stop spending money on lattes!" "You can't afford those jeans." "Eating out? You should cook at home every night -- duh."

The only problem is, these tips haven't worked for the last 50 years. Look at any indicator of debt or financial literacy and you'll find that Americans are worse off year after year.

Perhaps it's time for another approach. Instead of telling Americans worrying about cutting back on everything, what about earning more?

It turns out that, when it comes to the two ways to grow your money, most Americans focus entirely on cutting back, but neglect the idea of earning more money.

In my research, I discovered two main reasons we don't focus on earning more: First, we don't have an idea how we could earn more. Second, we believe we don't have enough time.

And so we focus on micro-savings like cutting back on our morning latte, when eliminating it will only save us a few hundred dollars per year. But the truth is, with five to 10 hours per week, most Americans have an existing skill that could earn them $1,000 a month on the side.

For example, if you play a musical instrument, you could be a music instructor, often charging $25 an hour or more. If your house is meticulously organized, you could be a personal organizer, billing out at $75 an hour. Many of my readers charge very high rates -- sometimes over $100 an hour -- doing web design, Powerpoint creation or IT consulting.

In this economy, multiple revenue streams mean more security from a layoff. And since it's on the side, as you start to earn more, you can save it, pay off debt, spend it -- or even decide to quit your job and start this full-time.

So when it comes to living a rich life, what will be more effective? Trying desperately to save a few bucks on our morning latte -- then rebounding back out of habit -- or earning thousands more doing something we already love?

Vigeland: Ramit Sethi is the author of the book, I Will Teach You to be Rich. Post your thoughts on our Facebook page or here.

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Ramit has a great idea, but you cant limit it to what you already do. I'm an IT support person by day, but I ref softball, basketball and football for side money. I probably average a few hundred dollars per month, but man that justifies me going out to lunch a few days a week with my friends.

Excuses, excuses, and more excuses.

@Victoria. No one said there was no effort required, certainly not Ramit.

@Leonard I'm a web developer, with a full time job. I also contract on the side at $80/hr. 2 years ago I charged $50/hr. After reading Ramit's book and website I took the plunge and raised my rates. Not a single client of mine batted an eyelash.

Guys, Rami Sethi's commentary was very refreshing. It may sound obvious but a closer look it may not be so. Lots of times I hear about cutting back but rarely looking to do more. I know it’s easier said than done but anything worth something comes with some sacrifice.

If picking up the extra $1000/month for 20 hours work were that easy.

I am an Internet consultant with extensive technical skills. If I charged $100+/hr I would have very few clients. Most people needing IT work want that during normal business hours.

Ramit Sethi's concepts are great; unfortunately, he just glosses over the hard parts.

@Victoria: Yes, he's for real. I've not read the book and I've not seen his website, but he is 150% correct. With individuals as with companies, the commonest error is this idea that you can save your way into prosperity. It doesn't work. Never has, never will.

Adding an extra income stream, even if it means (gasp) turning off the TV, or working weekends, is a thousand times more successful than "economizing."

The teaching thing is an example. There are thousands of possibilities. I don't know a single person who doesn't have at least one marketable skill.

I've been a long-time listener to both Tess and Ramit, and I have to say that Ramit's got a point: your ability to cut costs is limited; your ability to increase income is unlimited.

And RE: Victoria criticizing Ramit's website and book: you should take the time to read his book before leveling your criticism. Ramit's recommendations are sound financial advice (automate savings strategies, cut undesired expenses), but with the added twist of encouraging people to earn more money and enjoy the fruits of their labors. I think anyone would be hard-pressed to find fault with his methods.

And heck, even if you don't turn your instrument hobby into a source of income, why not sink an extra five hours a week into a different side job? Earning an extra $50 a week through income will beat the pants off skipping a morning latte, no matter how you measure it.

I couldn't believe this commentary. Is this guy for real? As mason Singer points out, just because you are good at something doesn't mean you can teach it to others. And even if you can, that doesn't mean you can make money doing that.

How many unemployed musicians, web site designers, etc. are out there already trying to make a living this way? Implying that one can easily pick up a few dollars on the side with no effort is naive at best.

The final insult to this was when I heard Tess say that Sethi is the author of a book titled "I will Teach You To Be Rich." While books with similar themes -- how easy it is to get rich with little effort -- are perennial best-sellers the only folks who get rich off them are the authors. I checked out his website and it seems that Sethi is just the latest version of Kevin Trudeau, etc. How in heaven's name did a show for which I have so much respect get in bed with this huckster?

Why can't you do both?
And selling services isn't as easy as Sethi makes it sound. Folks don't always pay on time.
Actually, Sethi's advice isn't that new. My 95-year-old grandmother worked as a nurses' aide and ran a bootleg beauty parlor in her basement for years. Her dream was that her child and grandchildren wouldn't have to hustle so much to make ends meet.
The more things change...

RE. Rami Sethi's commentary

Focusing on growth rather than contraction is good advice -- under the right circumstances.

But two quick thoughts:

1. Just because you can play an instrument or are a good organizer (or a good money manager for that matter) does not mean you can teach these skills. Teaching is a learned ability for most of us, and its own skill. And this does not even touch things like the additional costs incurred in pursuit of additional income (taxes, promotion, insurance, rent, etc., etc.).

2. Most of us are the victims of our own excess. Looking first at cutting back is most likely the thing to do before blithely selling your services and desperately looking for more money to cover an excessive lifestyle.

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