Spend Less Than You Earn

Spending

When it comes to building wealth, it’s really quite simple on paper. Spend less than you earn, invest the rest, let time and the market take it from there. Once you have 25x your annual spending in your accounts, you’re free. Anything more from there is a bonus.

It’s easier said than done. Especially if you’re currently in debt or are living paycheck to paycheck. However, this is a core concept to the Just Stop Spending Philosophy.

Spending more than you earn would mean you’re having to use credit cards to loans to cover expenses. Your spending exceeds your monthly income. 

If you’re living paycheck to paycheck you’re spending what you earn. 

Ideally you want to cut back to the point where you’re keeping some money. Eventually, you want to be keeping a majority, in my opinion (over 50% is a very healthy savings rate, but no easy feat).

For our visual learners like myself:

Graph showing 4 options, spending more than you earn, spending all you earn, and two more ideal options that we want to achieve: spending less than you earn.
How much do you spend in a month?

Why Spend Less Than You Earn?

For one, you will get out of debt quicker. If you utilize my strategies for paying down your debt strategically, you’ll pay it off even faster.

What you’re doing by spending less than you earn is freeing up your cash flow.

By doing this you’ll have more money to allocate to an emergency fund. Eventually, you’ll have enough resources to begin saving and investing and making your money work for you. The opposite of being in debt.

Once you’re at that point you begin to build wealth. You gain freedom by reducing your dependencies on external things. 

Responsible vs. Fun

Living this way is also the responsible thing to do. I think most people reading this understand that the top line above (spending more than you actually have) is not an ideal long-term situation they want to be in.

Those readers aren’t difficult to convince. Mostly due to the fact they’re aware of the situation and know that it isn’t sustainable. Few can muster the resources to keep that type of lifestyle up for years but it’s difficult to do. For most it’s a stressful place to be and one I was in just a few years ago myself. 

People spending all or close to all that they earn are a harder crowd to convince. It comes down to this: You will most likely never hit your long-term financial goals if you continue down this path.

It can be fun and easy to live paycheck to paycheck, actually. Especially when young and single. You can get away with it for a long time. Eventually, you’re going to need some savings to fall back on or you’ll be ready to retire. The earlier you start, the easier it will be to create wealth, too.

Money is a tool for freedom. Freedom to choose how I spend my time. 

Therefore, instead of living paycheck to paycheck now, I’d rather make my money work for me and open up more options for Future-Me. This could look like early retirement for some. Others it means being able to go back to school, a total career change, pursuing passion projects, starting a business, finally feeling comfortable having children, etc. 

Everything in Moderation, Even Moderation

It is possible to go too far on the spectrum and spend no money. This could be achieved by living with your parents, thus potentially no rent or food costs for a short period of time. Or being homeless in unfortunate circumstances. Those are temporary or very extreme circumstances.

Don’t go too far in the opposite direction. Some people are naturally or become adverse to spending any money at all. I don’t think that’s healthy either.

Happiness does not come from money or things. However, security does. For me personally, there’s a few things I want to do or have in my life. They’re not required for my well being but they are preferred over their alternatives. Therefore, you’ll find me with a strong aversion to skimping completely on things and never spending money. 

I try to: 

  • Bring value to people and make money from that (enjoy what I do with my time)
  • Spend time with my family and friends
  • Have time to pursue hobbies, interests, and travel
  • Have and enjoy nice things & experiences in life

It’s a Balancing Act

Strike the balance between how much you spend now and how much you want to have in the long-run. What are you willing to give up for Future-You?

I don’t mind driving an old, ugly car for now. I know that’ll pay off one day. On the other end, I enjoy going to nice restaurants and trying new food experiences. I don’t do these often but when I do I really enjoy it. 

Find your place on the spending spectrum. The lower your expenses, the quicker you’ll get to financial freedom. The other side of that is the higher your income, the quicker you’ll get to financial freedom too. Keeping your spending reasonable and working hard to bring value in the world will maximize results in both directions. This will provide a more enjoyable, balanced approach.

How to Spend Less Than You Earn

If you’re stuck in debt or living paycheck to paycheck you may be wondering how you can possibly spend less than you earn. I get it. 

The concepts are simple. To summarize in three words: just stop spending.

An examined look at what “just stop spending” looks like for you will be what you want to find out. It’s different for each person.

I would recommend starting with a short-term and long-term goal. Where do you want to be financially in a year? In 10? How about 30? 

From there, make a budget and track your spending for a month or two. Don’t try to make drastic changes. Just see where your money is going first. 

Once you have your budget set up, make sure you stick to it. This is the only way you’ll hit your goals, assuming your budget lines up with your financial goals (it does, right?). Consider calculating and tracking your net worth, too. 

If you need a quick way to stash some cash, consider doing something a little out of the ordinary, like a Savings Challenge. These can be a good way to get out of your comfort zone and get the ball rolling on building good habits. 

Once you’ve reduced your spending and struck the balance you wish to achieve, maintain this. Adjust as necessary. You’ll learn and grow. Hopefully your income grows too!

This is why I do what I do here at JSS. I enjoy helping people get on and stay on the path to financial freedom. Around here I specialize in the “why”, not just the “how”. Both sides are important to me. Realizing why and how to spend less than I earned was an important first step in my journey out of debt.

Here are ways to support, stay in touch, and work together:

I look forward to speaking with you and helping guide you down this life changing path.

In health and in wealth,

Seth