How To Spend Less Than You Earn – Why So Many People Fall Short Of This
“Don’t spend more than you earn”. Does that statement sound familiar to you? What about: “cut your coat according to the size of your cloth”?
I bet you may have heard statements such as the ones above (or similar ones) several times in the past. Why are these statements of financial caution so popular?
Perhaps, it is because it is common sense. Maybe. Alternatively, it could be because many people cannot follow the tenets of the simple statement.
All over the world, people continue to acquire things they likely do not need, at the expense of their usually lower bank accounts. Many people are living on credit, though they appear to earn quite decent salaries.
Why is that? What may be the problem?
Let’s explore some of the major reasons why so many people fall short of spending less than they earn.
1. It’s In Their Upbringing:
As strange as it may appear to you, you don’t carry just genes from your parents, you carry their money habits too.
Your parents are your first teachers or leaders on earth. You picked so many things from your parents. One of such is how they handled money while you were a child.
Were they super frugal or major spenders? Was money a topic often treated at the dining table or it was a taboo topic? How often did you see your mom or dad save or invest money? Was the casino your dad’s favourite place?
It is important to find time to go through a thorough analysis of how your parents handled money. In most cases, it is probably where your blueprint about money comes from.
2. Living A “No Budget” Life:
You have probably heard of a country or company’s budget, right? But did you know budgets are not for only organizations and countries? A budget is for everyone.
Most people walk around without a budget because their understanding of a budget is weird. Many people see a budget as that piece of paper meant to limit or deprive them of full enjoyment of their earnings.
Meanwhile, a budget is nothing but a plan used to distribute one’s earnings. It tells you when your money is going. In most cases, if your budget is made up of your expenses, savings, and investments, you may not have much of a problem. The budget serves as a control mechanism to manage your cash flow.
However, problems arise when such a plan doesn’t exist in the first place. You may continue to spend until your expenses become more than your earnings, with almost nothing left to save or invest.
Such behaviour only leads one into being broke faster than you could imagine.
3. Reliance on personal debts:
If there were a financial drug that is easier to access or acquire but is one of the best destroyers of life, we would call it “debt”.
If people can become drug addicts, then we have debt addicts too. Credit is so much easier to get now than has ever been. And, because you can get more than you earn now and pay later, many people fall into the snare of borrowing more than they can pay.
In the end, two things happen: they do not repay their debts on time, and, their credit scores become worse over time making their future debts more expensive. This is what is termed as a “debt double dip”.
While debt to a government or business could be “good” if it is turned into a profitable venture that pays off, personal debts are dangerous. What is far dangerous is when one chooses to fund their extravagant lifestyle with debts.
Don’t be like such people. Choose to “watch out” and live a “G.O.O.D” (Get Out Of Debt) life and surely you will.
4. Wrong Associations and Partnerships:
We often don’t realise the influence the people in our circle have on us. The people we follow or hang out with, the neighbours in our community, and most importantly, our partners or spouses.
Some people spend more than they earn because they follow or are in relationships with the wrong people. It is no surprise at all that the quote: “you’re the average of the five people you spend most of your time with”. The reason is simple: they directly or indirectly influence your decisions and choices.
Therefore, if the philosophy of the person you follow on Instagram, your best friend or spouse about money is terrible, you are likely to grab them into your subconscious mind and make such philosophy your own without asking any questions. There is no surprise at all that issues about finances or money are the second most popular reason for the high rate of divorce all over the world, after infidelity.
You did not make or create the people you associated with, but you can make a conscious effort to move out of their circle. Choose your partners, friends, and “mentor” wisely, before they ruin your life financially – with your permission.
5. Ignorance and No Self-Awareness:
What comes to mind when you hear the word “money”? Spending it? Making it? What is your philosophy about money? What did your experiences and actions in life teach you about money? Could there be a mentally made-up perspective about the money you may not be aware of yet?
These are some hard questions to ask yourself to become self-aware of your view of money and the impact it makes on your spending.
If your perspective about money is to spend it, you are likely to be swayed by that “50% OFF!” tag on stuff you do not need. In addition, your ignorance about money will let you assume the vendor cares so much about you to want to “lose” money for your sake.
What about buying stuff to show your “haters” you’re rich?
Sorry to disappoint you, but, no one cares about you that much. Moreover, the earlier you realised and accepted this reality, the better for you, financially.
6. Lack of Personal Plans:
It is quite surprising that the people who meet to discuss a 5 or 10-year plan for an organization do not have any idea how their next 12 months are going to be like.
Yet, if we conduct a survey now, almost everyone can give you an idea of how he or she “wishes” to see their next 12 months, with very few people having a concrete idea of a planned year ahead of them.
Many people buy into the idea of enjoying the moment or living now. Well, that may be true, to some point. You don’t want to be lost in thoughts in a meeting only to grab “nothing” in the end. To that extent, it is necessary to live in the moment.
However, for your life in general, living in the moment only with no plans for tomorrow is a sure way to bankruptcy. You don’t have to visit every part of the world, consume everything “consumable” or buy almost everything just to “live in the moment”.
It is simply impossible to follow through and achieve a long-term goal or vision if you keep spending 100% of your earnings plus even more.
If you spend 100% of your finances to “live in the moment” or enjoy life for just today, may have to spend your future in misery and regret not planning for it (future) in the first place.
7. Wrong Definition of Happiness:
What does it mean to be genuinely happy? To someone, the answer to this question is “shopping”. To another person, the answer is “enjoying peace of mind”. If you belong to the former, I have some bad news for you: you will be bankrupt soon.
Many people confuse spending to mean happiness. Therefore, they just can’t wait to grab the latest iPhones, Rolexes, and BMWs because to them, that is what will make them happy.
For this reason, they go to every limit to acquire this stuff, whether they need them or not. Then, they get a bit of dopamine for a while, as well as all the attention and hatred. The sad news is that such happiness doesn’t last long enough. Sometimes, a new version of what we bought is released even before we begin to use ours.
While other draw happiness from stuff, others draw their happiness from other people too. They are only happy when the other person is happy or around them. Yet, people can disappoint. When they eventually do disappoint them, they break down totally. Not only is that unfortunate but also harmful to both one’s health and finances.
What will surprise you to know is that most of the things that genuinely make us happy are either less expensive or even free. Sometimes, just an act of generosity, peace of mind, great experiences, hobbies, etc. may be all that we need to be happy.
Until you define and fill in the gap for what makes you happy, you may assume that anything else can fill the gap. Some of which, might be very expensive.
8. Unwarranted Liabilities:
Books such as “Rich Dad, Poor Dad” have taught us what liabilities are: things that take money from us. Yet, not all liabilities are bad. For instance, electricity and the internet may be a liability (based on the simple definition above), but it is what powers your life or business.
However, when liabilities are unwarranted and excessively expensive, they can lead to serious challenges financially. For instance, giving a salesperson a “tip” for their service is unwarranted, in every way. First, he is doing his job (and will earn his fair wage or commission), second his job is to make you spend more (that may not be in your favour), and finally, he is still getting “free money” from guess who – you.
Generosity is good and recommended. However, willingly deciding to buy a beer for everyone at the bar because you just were paid does not look like being generous.
It gets much complicated when these unwarranted liabilities come from people close to us. That friend or cousin always calls for help from you or that colleague at work who relies on you to “bail her out” financially, almost every time. In other words, these people themselves through their financial demands on us; become liabilities to us, especially when their requests become a “habitual demand”.
It may not always be because you can help. Sometimes, they come to you because you help them avoid hardships and challenges because of their own wrong choices. Would you help them fix themselves (the hard way) or wait until your finances go down south from their constant demands?
In conclusion, though spending within your limits is one of the basic skills required to achieve financial independence, it does not come easily to many people. Luckily, most of the factors stated above include things we can fix. By knowing these factors, watching out for them, and making conscious efforts to eliminate them as much as possible, you make the first bold step into living a “G.O.O.D” (Get Out Of Debt) life.
Links to help you spend less than you earn
View our own learn how to budget page
How to plan and save guide