Spend less than you earn is the most basic rule for building wealth. But many of us spend more than we should to enjoy certain luxuries and conveniences. Once you get used to this lifestyle, it’s easy to get attached.
Picture: H. Michael Karshis/Flickr
There are plenty of people genuinely living hand to mouth, barely able to afford housing. But many of us feel like we’re broke when we actually spend quite a bit on wants. These small luxuries add up and narrow the gap between our spending and our income, making it difficult to save money.
But aside from saving, there’s another drawback to living above your means: a lack of flexibility. You get attached to a certain lifestyle, even though it may be holding you back in many ways. Trent Hamm of The Simple Dollar calls it the “golden handcuffs” phenomenon:
When people have a high-paying job, they often buy into the idea that they can “afford” a big house and a nice car and they buy them on a loan, which gives them big fat mortgage payments and car payments. This makes it very hard to choose to switch careers, and it makes the prospect of a job loss incredibly scary. My advice to anyone who is trying to build a flexible financial future for themselves is to maximise their cash flow — the difference between their income and their required spending.
It’s not to say you should never spend your hard-earned cash. It’s just another reason why it’s important to live below your means — the freedom of not being “handcuffed” to an expensive lifestyle, and the options that come with that flexibility.
To read more, head to Hamm’s post at the link below.