My first job paid me $23,000 a year.
I spent it all.
Then I got a raise to $28,000 a year.
I spent it all.
Then I got a raise to $33,000 a year.
I spent all that too.
Eventually, I was making a lot more. I found a way to spend it all by buying a house.
No matter how many raises or bonuses I got when I was a money moron in my early 20’s, I found a way to spend it. My lifestyle expenses gradually got bigger, and bigger, and bigger.
Better guitars (and amps, and pedals, and software).
I know I’m not alone on this. Are you with me?
Has your lifestyle increased at the same rate as your income?
Take a moment to look at your spending history. The car you drive now – is it the same car you would have bought six months into your first job?
If you’re on your second or third home, are your homes getting bigger and better, or smaller and cheaper?
I’m with you. I’m on house #3. My current house is twice as big as my previous two.
It’s why making more money will not solve anyone’s money problems. Why? Because we’ll find a way to spend it. We always do.
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Anytime you get a bonus or a salary increase the first thing to do is set aside a big chunk of it for retirement.
However, that rule only applies if you’re out of debt. If you’re in debt its best to take 100% of any new income and pay off your debts (credit cards, car loans, student loans).
What about if you’re not in debt?
Consider if your family income is $75,000 a year. You have no debt and a modest lifestyle. You’ve been doing great at work, and you get a promotion that pays you $78,000 a year. What’s the best thing to do?
Automation = Wealth
Take 50% (or better yet, 100%) of your new income and sock it away for retirement. Automate the savings so you never see your new income. You won’t miss it, and you won’t feel deprived. The lifestyle you live will be unchanged.
If that money shows up in your checking account, I guarantee you can find a way to spend it. The $3,000 raise you get only ends up being $150 a month extra after taxes.
It’s pretty easy to blow through $150 extra each month. In a family that might be only one extra meal out each week.
But if you take the money and hide it from your spending ways before you can get your grubby little hands on it to buy something you didn’t know you needed in the first place. Boom! You start working towards a rockstar retirement.
Yes, it’s totally boring. But future you will thank present-day you.
Less isn’t more. More is more.
Changing your spending habits will not get any easier as your income increases. You will make more money. It’s guaranteed to happen.
How you manage your money now is how you will manage your money in the future.
When you do make more, what will you do with it? You need to decide today. If you decide to save your bonus this time around, you’re much more likely to save the next one too.
Personal finance is a behavioral issue, just like losing weight. To lose weight people already know what to do, right? What is it?
Diet and exercise.
What do you need to do to get out of debt, save money, and build wealth? Spend less than you earn. Simple. You already knew the answer. Now you have to take action.
Is there a raise or bonus in your future? Commit to investing in yourself by paying yourself first. Your current lifestyle will still be fabulous and you’ll arrive at retirement in style.
Question: What did you do with your last raise or bonus? Please leave a Share it on Facebook.