Personal Finance

In the Game of Finance, Does Offense (Making Money) or Defense (Saving Money) Matter More?

Expertise: Personal Finance
13 Articles Written

“Offense sells tickets, but defense wins championships.” — Bear Bryant

I was stuck. The process of getting on a budget was tougher than I expected. We’d already tightened up the easy stuff, but there still wasn’t enough money being set aside for investing. It was hard to find something to eliminate that wouldn’t hurt. This was our life, after all. Several times I had set the budget aside in defeat. Maybe it would be more productive to focus on figuring out how to make more money.

I looked up at the game that was underway on TV. Sports broadcasters were always saying that “defense wins championships.” I wondered whether the analogy applied to managing finances.

Was it even true?

The Best Defense

The belief that “defense wins championships” is an almost universal law in the world of sports. Yet in a 2012 article on, authors Tobias J. Moskowitz and L. Jon Wertheim debunk this myth as it applies to the National Football League (NFL). In their analysis, the authors found no direct correlation between having a strong defense and winning NFL championships.

What they found instead was that winners tended to be either good at both offense and defense — or exceptional at one or the other.

It turns out that the same is true when it comes to managing your money.


The Game of Money

In the classic book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, authors Thomas J. Stanley and William D. Danko draw the parallel between household finances and the two sides of a sports team.

Related: A Whopping 62% of Americans Have Less than $1,000 in Savings. Really?!

“Offense,” according to the authors, is defined as the ability to make money. High-income individuals and owners of profitable businesses would be examples of people achieving on offense.

“Defense” is all about how money is managed at home. This includes the use of a household budget, taking the time to plan investments and major purchases, the ability to live on less than the household income, fighting “hyperconsumption,” and the ability to set aside a portion of that household income for investment.

The book builds the case for the “defense wins” theory. Based on decades of research into the wealthy in America, the authors state that:

“…being a well-educated high-income earner does not automatically translate into financial independence. It takes planning and sacrificing” (Stanley 67).

In the preface to the 2010 edition of the book, co-author Thomas J. Stanley goes on to say that:

“Most Americans have no idea about the true inner workings of a wealthy household. The advertising industry and Hollywood have done a wonderful job conditioning us to believe that wealth and hyperconsumption go hand in hand. Yet, as I have said many times, the large majority of the rich live well below their means” (xiv).

I can tell you from first-hand experience that it’s not just Americans who don’t understand this.

The Financial Championship

What is the financial equivalent of winning the championship? Stanley and Danko suggest financial independence is the goal of personal finance. But what is it? Entrepreneur and motivational speaker Jim Rohn defines it like this:

“Financial independence is the ability to live from the income of your own personal resources.”

Financial independence is not about greed. It is about achieving financial security through the responsible management of the money that you earn. People earn money every day, but most people don’t know what to do with it.


What Do You Need to Be Financially Independent?

According to Rohn’s definition, you need the income or return on your investments (ROI) to be greater than your cost of living. We can translate this into a net worth target. If you assume a 5% net ROI after all expenses, then you can generate $50,000 of income for every $1 million in assets. So, if you want to live on $100,000 per year, then you need about $2 million in assets.

You can use a different ROI percentage for your own calculations if you are certain of the kind of results you can get. But be careful: Relying on, say, a 12% return every year invested in the stock market is unreliable due to market fluctuations. What happens when the market drops? Since 1970, the S&P 500 index has had a negative return 11 times and less than 5% return a total of 18 times. You can’t eat a negative return. Instead, your nest egg and all future income will be greatly reduced.

So, let’s just say that you want to retire on $1 million. According to the 2013 Survey of Consumer Finances, achieving a net worth of $1 million would, in fact, put you in the top 10% of U.S. households. A net worth of $2 million would put you in the top 5%.

Related: How to Earn More Money at Your 9 to 5 (So You Can Invest It in Real Estate!)

Clearly, achieving financial independence is a major achievement.

What is Your Team’s Strength?

Right now, are you good at offense, defense, or both? Perhaps neither?

According to U.S. Census Bureau figures for 2014, if your household is earning $85,000 or more, then you’re in the top 30% of household incomes in America. If this is the case, then it’s safe to say that offense is something that you’re doing relatively well when compared to the majority of households. A household income of $160,000 would put you in the top 10% of U.S. households. Yet this doesn’t translate directly to financial independence. Less than 10% of households had achieved that $1 million net worth mark in the 2013 study. Stanley and Danko would appear to be correct.

Maybe you’re playing even better offense than this. In The Millionaire Next Door, the authors concede that this might be enough:

"Another minority, accounting for fewer than 20 percent of millionaires, typically earn such high incomes that to some extent they can eat their income and still have a seven-figure net worth. In other words, their extraordinarily good offense compensates for a lack of defense" (41).

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Does this describe your household? If so, then this article might not be for you. On the other hand, even a little bit of financial defense could ensure that major changes in your circumstances don’t derail your lifestyle.

If not, then you probably need to play some defense.

Let’s assume that right now, your household is under-performing on both offense and defense. Where should you focus your efforts?

Run the Numbers

To answer this, let’s look at some very simple numbers.

Let’s say your current household income is $55,000, which puts you right at about the 50th percentile for household incomes in America. If you aren’t investing any money, then in 40 years, you will have nothing. That much is clear. If you increase your household income to $85,000, putting you just within that top 30%, and continue to invest nothing, you will still have nothing. So much for offense.

Now let’s say that you’re earning that $55,000 and focusing on living within your means. You set aside 10% of your net income for investment. This means that you’ll invest about $4,695.25 each year. Let’s assume a modest return of 5%. After 40 years, you would end up with a nest egg of about $567,185.14. You wouldn’t be a millionaire, but you would have some options. Still, you don’t just want to have a good season — you want a shot at the championship.

Let’s say that you manage to increase your household income to $85,000 to be in that top 30%. You increase your lifestyle some to match your new situation, but still manage to put away 10% of your take-home pay, or about $6,945.25 per year. After 40 years, you would end up with a nest egg of about $838,984.63. That’s better, right?

But wait. What if you kept your income the same, at $55,000. But you tighten your belt a little further, saving an additional 5% of your take-home pay. Now you are investing 15%, or $7,042.88. How much will you have after 40 years? Would you believe $850,778.31?

What do you think would be easier: Reducing your expenses by 5% or increasing your income by about 55%?


A Winning Game Plan

The secret, of course, is to do both.

Using the examples above, if you increase your household income to $85,000 per year and set aside 15%, you will end up with $1,258,477.55.

Start by gaining control of your money. Play good defense. Then look for ways to increase your income. Play good offense.

You want to sell tickets and win championships.

Before you know it, you’ll be on your way to financial independence.

That’s a winning game plan.

What’s your take on this — do you focus on offense, defense, or both when it comes to finances?

Let me know your thoughts with a comment!

In 2013 Brad awoke from lifelong financial slumber and took responsibility for his family’s financial future. His primary vehicle for wealth-building is buy-and-hold real estate. He is passionate a...
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    Scott Trench President of BiggerPockets from Denver, CO
    Replied about 4 years ago
    Great article Brad – I fundamentally agree with this analysis, and will add an additional point that I believe is applicable to the average middle class American: For many, the opportunity to increase earnings by 55% won’t even come about until they can save a lot of money. How does one get a $30,000 raise on a $55,000 salary? Performance based pay, bonuses, options, advanced degrees, etc. What is the price of that opportunity to increase earnings? Salary, stability, benefits, or time and sacrifice. For example, a company that offered you the chance to sell in addition to your regular duties might pay a lower salary, but give you the chance to earn bonus commissions. You can’t take that job if you spend everything you make, because if you have a bad sales month, you’re screwed! On the other hand, a frugal person that can live off of just the base salary, or just a few sales, CAN take the opportunities that might lead to additional income tomorrow, at the cost of lower stable salaried pay. I think that frequently, many people overlook the fact that defense can create offense. That a frugal person might be able to take work that his/her peers cannot risk.
    Brad Lohnes Investor from Cambridge, Waikato
    Replied about 4 years ago
    Thanks, Scott. Glad you liked it. It’s a great point that you make – and I must admit that we’re not living so frugally that I could personally just jump ship to a low-paying job (with potential big up-side). At least not yet. What you’re suggesting is being exceptional on defense, something I didn’t go into in great detail. Thanks for your comment!
    Marina Spor Investor from Buena Park, California
    Replied about 4 years ago
    @Scott. I completely agree. Living below your means enables you to take the opportunities that come your way. Early in my career, I was able to take a chance on a consulting work opportunity only because I felt financially confident enough to leave my regular job. This opportunity provided significant experience that helped me increase my yearly income multi-fold. I would never be able to do this if I didn’t have savings. I had felt trapped at one point in my first job, and I decided that an important goal for me was to have enough saved to allow me to walk out on a job. I’ve never had to of course, but it has reduced my stress-level to know that I could if I wanted to. This type of financial freedom is worth so much more to me than nice cars and trinkets. And, having the savings and good credit scores enabled me to take on real-estate investing opportunities when the market was down.
    Mike Dymski Investor from Greenville, SC
    Replied about 4 years ago
    most Americans’ defense is offensive…and many are not inherently good at offense
    Brad Lohnes Investor from Cambridge, Waikato
    Replied about 4 years ago
    Hi, Mike. Thanks for your comment. There’s absolutely something to making more money. Most just spend it though. I was doing that for a long time. Still do to some extent but have much tighter control over it now.
    Chris Falk Investor from Yakima, Washington
    Replied about 4 years ago
    Well said Brad. When I signed up for BP there were a couples posts in here w/some spirited debate about spending time and energy on belt tightening vs growing ones’ income. I see both sides but I’m semi-retired so the opportunity to grow the income side of my ledger is a little diff than those w/day jobs. I can try to increase my cash flow by making some hopefully smart RE investment decisions and via a few other investment channels. On the expense side, at some point you knock off the low hanging fruit when belt tightening (car payments, cable payments, cell bills, eating out, travel or whatever else discretionary that can add up) and it can get kinda tough to find expenses that move the needle much per month or year. For example, I spent 10 min holding on the phone w/a newspaper to cancel my online subscription recently since I wasn’t reading it very often. I finally realized it was a silly use of my time to keep hanging on hold to save $12/month (wouldn’t let me cancel online so they could try to talk me into keeping my subscript of course). I value my time more than that and yes I could basically multi-task while on hold but my brain has limited “bandwidth” as it i:-). If I had 10 recurring charges for $12+/month and not really needing or using the services then sure, it starts adding up and I can justify spending a little time canceling a few. However, if $12/month or $144/yr is going to make it hard to put food on the table then I have a lot bigger problems to address w/my personal $ picture. Not sure if my example makes sense but it was on my mind as I thought about this income vs expense topic last weekend.
    Brad Lohnes Investor from Cambridge, Waikato
    Replied about 4 years ago
    Hi, Chris. Thanks for reading and your comment. As the article indicates, I’m in favor of both. It’s just that without the defense, the offense can’t be effective. Not sure if you’re a football fan, but it’s like your team putting 35 points on the board but losing because the other team scored 40+. As for the $12/month – well, I think I’d probably make sure it got cancelled, personally. Frees up the money for other uses. Might not move the needle a lot, but could be put toward something else you’d rather have. If you’re really not using it, it’s just wasted. I value my time too, but how much? $144/yr, and if it takes 10 minutes to cancel than your time needs to be worth $864 per hour – and that just covers one year. If you never cancel it, the cost becomes pretty high. Just my own approach. When we got our household on a budget, we made sure that we knew every single charge and still wanted it. There’s some time spent filling out forms and/or waiting on hold, but we decided it wasn’t wasted time. Just my 2 cents. 😉 Cheers!
    Jerry W. Investor from Thermopolis, Wyoming
    Replied about 4 years ago
    Nice article Brad. I just finished the Tony Robins book on understanding investing and it was very enlightening, albeit a bit long. I actually started investing in real estate a long time ago and have a decent sized portfolio but it was very sporadic. If I had really pushed like I have the last 3 years I would probably have achieved all my current goals. Start now do not wait.
    Brad Lohnes Investor from Cambridge, Waikato
    Replied about 4 years ago
    Hi, Jerry. Thanks for reading and leaving a comment. I haven’t read that Tony Robbins book. I agree about starting now – We’ve only been at it for a few years but I’ve already gone through that valley of despair, wishing I’d started earlier and/or done more so far. We can only go forward! Cheers.
    Charles A. Rental Property Investor from Jacksonville, FL
    Replied about 4 years ago
    @chrisfalk My easy way of dealing with repeat subscriptions I no longer care for is to ask my bank to issue a new card with new numbers. The companies will be the ones holding on for 15 minutes the following month. They will all call you.
    Brad Lohnes Investor from Cambridge, Waikato
    Replied about 4 years ago
    Great approach! I’ll have to give that a try. 🙂
    Chiara Petrachi
    Replied over 2 years ago
    Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA
    Replied about 4 years ago
    Thanks for the post, Brad! Really enjoyed reading the post and the comments too. I would agree that increasing the salary by 55% may sound a bit difficult for the everyday Joe but cutting expenses by 5% seems reasonable. A $12 subscription clubbed with similar charges could make a difference. Thanks for sharing!
    Brad Lohnes Investor from Cambridge, Waikato
    Replied about 4 years ago
    Hi, Dmitriy. Thanks for reading and leaving a comment. I’m wholeheartedly in favour of looking at ways to increase income. It’s just not effective if you let the money slip through your fingers. Cheers!
    Matt Chandra from Sacramento , Ca
    Replied almost 4 years ago
    Great article and great analogy!
    Amber Porter from B, WA
    Replied over 2 years ago
    I like pay raises, but feel that cutting an expense is worth more. If I get a $1 raise, about 25% or more of it will go to taxes and payroll deductions. If I cut expenses by $1, I keep the whole $1. Obviously, I can only cut expenses so far though.