Wealth Inevitable: Spending Less Than Our Income

Right after college, my wife and I were living in Chicago with our 2-year old son and our daughter “on the way.” My brother and sister-in-law came to visit us. One day, my brother opened our freezer and said, “you guys sure love chicken!” He said that because the freezer was full of pre-prepared chicken. My wife used to buy a lot of chicken because it was extremely cheap; then she’d clean it, chop it up, label it and store it in the freezer for our future meals. During this time, we very rarely ate out and it would be several more years before we took our first vacation as a family. We did not have any discretionary income and fortunately, we knew it and spent (or didn’t spend) accordingly.

Sixteen years later, my career was thriving and my income was higher than it had ever been. In one particular pay period, during which we’d taken a one-week vacation, we spent over $500 in Ubers and over $1,000 eating out. I have plenty of evidence that when the money is flowing, I am more than capable of spending it just as quickly as it comes in.

Over the nearly thirty years my wife and I have been married, we’ve experienced a wide range of incomes from earning minimum wage to high salaries. Personally, I’ve discovered that of the six essential principles of wealth development, the most challenging for me is to spend less than my income, consistently. Some people find spending money unnecessarily abhorrent. I’m not one of those people. I’m sure I didn’t “need” to spend over $500 in Ubers during that one week vacation, but I enjoyed the freedom of doing it because it was convenient. I’m not proud of this and as I’ve gotten older (that was about ten years ago), I’ve started to develop a healthy appreciation for “good value,” which helps me to spend more judiciously even when I have the means to “go nuts.” But there are several indulgences in life that I am personally at risk of overdoing; among them sugar-consumption, binge-watching and yes, over-spending.

The fact is, spending less than our income, consistently creates wealth. Spending more than our income, consistently destroys wealth.

So given my propensity to spend, I’ve developed several tools, which have helped me to keep my spending in check (i.e. below my income) in times of abundance as well as lean times.

Avoid Consumer Debt

The most powerful tool I’ve used over the years for spending less than my income is to avoid consumer debt. When we take credit cards “off the table,” as a mechanism for buying things we cannot afford, we are limited to the funds we have available for our spending. You can learn more about managing credit card use here.

Financial Tracking with Itemized Spending

For the past 25 years, I’ve kept an ongoing “checkbook,” which details what goes in and out of my checking account. I itemize and categorize each purchase, including the ones I make on my credit card. This process, which I call “financial tracking” creates awareness with respect to my spending. You can learn more about financial tracking here and here.

FREE Money Accounts

While avoiding consumer debt is the most powerful tool I’ve used to make it easier to spend < my income, my favorite tool is FREE Money Accounts. In a nutshell, these FREE Money Accounts are separate accounts that are exclusively for leisure spending. Our family’s main checking account (which we call our “operating” account) is exclusively for bills and non-discretionary spending. Separating our discretionary funds adds crystal clarity to what is available to spend on “fun stuff.” As a self-described “spender,” I find this both useful and liberating. You can read more about FREE Money Accounts here.

Reserve Accounts

Even when we attempt to stick to our budget, we can get derailed and demoralized when we are hit with emergencies. Conversely, when we are prepared for costs that only occur periodically, we feel a greater sense of control, which helps us to spend responsibly on a daily basis. Read more about cultivating the peace that comes with preparation here.

The Truth About Money

Many of us think that our financial health is a reflection of our will-power. This is not only inaccurate, but it can be dangerous because it may cause us to make unfair (and potentially demoralizing) inferences about our character based on money. The truth is that our financial health is a reflection of the systems that we put in place. Spending less than our income is achievable, practical and critically important. Of the six essential principles of financial wealth development, it is the most important. All of the other principles support this one. Principle #3: Spend less than your income, consistently!

Spend responsibly,

wellbeingGrant