There’s really no other way to say it. No matter how much money you make or how successful you are as an investor, the real key to financial independence is to spend less than you earn.
And the greater your savings rate, the sooner you’ll reach that goal of financial independence.
When you spend less than you earn not only do you have money to invest, but by having a lower expense level, you’ll need less income to maintain your lifestyle when you decide to retire.
If you’re spending more than you earn, you need to stop. And if you ever want to stop working, you need to start saving much more than you spend.
The Earning / Spending Trap
The need to work a job you dislike to pay your bills can be stressful. And the more you spend, the greater that stress.
When you spend less than you earn, not only is there a financial benefit, but there’s another hidden benefit as well. In addition to the financial gains, when you spend less than you earn, you begin to realize that you are in control of not just your finances, but you are in control of your life.
I know plenty of people that make large sums of money. And while you would think that someone who makes more in a year than many people earn in a lifetime wouldn’t have financial trouble, that’s not always the case.
Some people just like to spend their money on expensive houses, luxury cars, and extravagant vacations. And what’s even worse is that sometimes it’s not just these big-ticket items that are the problem. What about going out to eat all the time? How about all those impulse purchases from Amazon? They all add up.
There are so many easy ways to spend money. And often the more money you earn, the easier it is to spend that money.
Stop Complaining and Start Doing Something About It
If you can afford these things and choose to spend your money that way, who am I to argue? It’s your money. Spend it however you want.
But if you choose this path, just don’t come complaining to me about the demands of your job.
The real problem isn’t the demands of your job, it’s that you need to put up with all those demands to keep living your expensive lifestyle.
I will admit that I may not be the most frugal of all people out there. I have been known to spend more than I should. In an earlier article, I discussed the difference between cheap and frugal. In my mind, while both terms imply a desire to spend less, frugal implies a lifestyle decision whereas cheap is short-sighted – always paying the least amount possible no matter what the quality.
But if you aren’t in the mindset of deciding whether you’re frugal or cheap because you’re neither, maybe you need to reassess your life.
At the end of the day, we are all responsible to ourselves. Complaining about something won’t get it fixed. Instead, start doing something positive. Stop spending money!
Regain Control
Many people who work demanding jobs tend to feel that their spending is justified.
“I work hard therefore I should be able to take a big expensive vacation.”
It’s only natural. We start wanting a reward for all that hard work. But just like the dieter who decides to celebrate a long run by eating dessert, if we’re not careful, we can let our reward offset the benefit of all the hard work.
Just remember to keep the big picture in mind.
Think of saving money not as a punishment, but as a means to an end. You have a vision of the future and saving money accelerates your getting to that destination.
Stop doing mindless things to derail your efforts.
And if you decide to continue spending money, stop complaining to me about how you hate your job.
Readers, when did you have a that moment of illumination when you realized that you needed to spend less than you earn?
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Shortly after entering the real world I began to realize that the people who made more money were still in the same financial position as low-income earners…they just have more expensive toys. That too is when it began to sink in just how important it was to live below my means and save for the future! Great post, FS.
Thanks for stopping by and commenting, Green Swan.
I have been working with my kids to get them to understand the difference between more material things and a better financial position. It’s easy to get caught up in thinking that someone is wealthy because they own lots of expensive stuff.
Wealth and income are not the same things. You can be wealthy with moderate income and poor with a high income.
Thanks again.
You’ve got a great point here: feeling like you have control over you life is the whole reason we’re all trying to get control over our finances. It’s so easy to feel like once you’ve gotten some amount of money (be it a raise, or increased revenue in a business) that you feel like you’ve earned the right to spend it. It’s too bad most people don’t feel like they’ve earned the right to SAVE it. Very enlightening post, thanks for sharing!
I completely agree with many of your points. No matter what you earn, if you blow all of the money, you are still broke. Many people are better off financially and make less income. I will confess to regularly referring to myself as cheap. I don’t see that as a derogatory term. Whether you call it cheap, frugal, thrifty, tightwad, etc it is a frame of mind. It has much less to do with the numbers and more to do with how you look at life. I look forward to reading more from you in the future.
When I couldn’t afford to replace my car when the engine blew up. I knew that it was time to start saving more than I was spending. It’s been a long path but I am finally to the point where I could actually buy a new car if I absolutely needed to. Definitely a nice feeling 🙂
It seems like we all have a trigger event when the lightbulb turns on. For some, it happens sooner and that’s one of the missions that I have for this site.
There are no shortage of ways to separate you from you hard earned money. It takes serious discipline in this day and age to resist. We are inundated with ads, quick shipping items and images of how “stuff” will change your life for the better. For me I realized it when I was 40 and had less than 50K saved for retirement. The light went on and since then I am a saving machine. Mostly out of fear. Thanks for sharing!
-Brian
Thanks for commenting, Brian.
It’s great when that realization hits you that either you’ll need to work forever or you can figure out a better way.
And it’s really not about how much money you make. It’s about how much you save.
Glad to hear you’re now a saving machine!