Those of you who have read Free Money Finance for some time now likely remember my posts on It's Not What You Make, It's What You Spend and my follow-up post on Michael Jackson and More: It's Not What You Make, It's What You Spend. If you don't remember, the main point of each is:
It's a financial truism that what you spend has more impact on your net worth than what you make. I've counseled people making well over $100,000 per year and going farther and farther into debt and also seen people making $30,000 with solid net worths. You have to consistently live below your means to grow a net worth of any meaningful size.
I just ran upon this article from MoneyCentral that says the same thing. The overall article is titled seven radical ways to save money, but the first part of it talks about how controlling your spending is vital to your financial health. Their comments:
"It's getting harder to blame savings shortfalls on your measly pay stub. In fact, how much you save has little to do with your income, research by economists Steven Venti and David Wise shows. It has more to do with whether you want to save and are willing to adjust to boost your saving."
"Venti’s and Wise’s 2000 study, "Choice, Chance and Wealth Dispersion at Retirement," found a wide range in how much people at the same income levels were able to save for retirement. The study also pointed out that it wasn't just the higher income folks who managed to save the most. Indeed, people in the lowest income groups were able to save more than some of their middle-income peers -- by about $100,000."
"The key, then, is spending less than you earn."
"Tahira Hira would agree with this conclusion. A professor of personal finance and consumer economics at Iowa State University, Hira has spent more than 25 years studying how and why people spend, and why some people get into financial trouble. 'We're spending tomorrow's money when we put things on a credit card,' she says. 'You keep locking yourself up and losing your freedom.' "
"Her bottom line on financial health? 'Stop spending.' "
I couldn't have said it better myself. ;-)
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