Financial Freedom is About Spending Less than You Earn

Here's a quote I just love, love, love from a Des Moines financial planner:

I tell all my clients that one of the causes of financial failure has its roots in cash management. It is not about how much you make, and it is not about how much you spend. It is all about the relationship between the two.

Exactly!

This is the heart of what I mean when I say that we all need to spend less than we earn. No matter what we make, we need to spend less than that amount. I go over this again and again, using examples from both extremes to make my point. For instance, here are people who make a ton of money, but because they spend more than they make, they are going backwards financially:

• It's Still Not What You Make, It's What You Spend

• It's Hard to Save Money On Only $250,000 Income

• How to Go Broke on $200,000 a Year

• Michael Jackson and More: It's Not What You Make, It's What You Spend

• How a Billionaire Can Go Broke

And on the other hand, here are people that make very little comparatively, but they're doing pretty well by almost anyone's standards (certainly by the averages in this country):

• How to Get Rich on $20k a Year

• Generating a Great Net Worth on a Small Income

• How to Grow Your Net Worth When You Don't Make a Lot of Money

• How You Can Own Two Homes with No Debt on $33,000 a Year

It's a pretty simple concept, just hard to implement for many people. All you have to do is spend less than you earn and your net worth will begin to grow. And if you're currently not spending less than you earn, you only have two choices -- earn more money or spend less money. It's that simple.

Comments

[Tabuxander]

Thanks for article. I totally agree with you, in the end it's all about the networth, no matter how much you've earned.

[Art Dinkin]

I am glad you like my post. Thank you for pointing it out to your readers. I am going to return the favor and point out your great collection of similarly minded posts.

[Bruno]

All good stuff. Solid common sense. I have my kids reading "The Richest Man in Babylon". I fear the bigger problem - a society that thinks we are built on needless spending and there is gain with no pain. I haven’t found that financial diet pill that lets me spend all I want and save at the same time (frivolous law suits and bankruptcy aside). My hat is off to those who are setting aside any amount of money in a savings/investing account and thank you Art for doing your part. I can’t help but think we will be paying the debts of the less diligent.

[Minimum Wage]

So it IS about what you make, PLUS what you spend.

You can't really say it's about the latter but not about the former, or that it's about the former but not the latter.

[FMF]

MW --

What do you mean by "it"? If you mean getting wealthy, you do need a baseline level of income, but it can be very low ($20k per year) and you can still end up well.

All things in PF work together to add up to financial success. Don't pick any one thing and concentrate on it -- do them all and succeed.

[Minimum Wage]

OK, at least it now appears we agree that you can't really become wealthy on a minimum wage income.