I was reading a post on one of the forums I visit and the question came up about living below our means. Is it really needed? Can’t a person simply earn so much money that they naturally won’t spend it all?
Perhaps… but the odds are against it.
You see the ways to spend money are unlimited. My Mom used to tell me that my eyes were bigger than my stomach (I couldn’t eat everything I wanted). For many people, even the high earners, their eyes are bigger than their bank accounts. We’re talking $25,000 hotel rooms. $1,000 ice cream sundaes. You name it.
And it causes a problem. The same problem someone earning $14,000 a year has. No savings. Zero net worth. Once the income stops, they have nothing.
In a survey by HSBC Direct, the number one excuse that income earners in the $250,000 and above bracket gave for slacking off on savings (investments) was because they had to pay bills. Pure and simple.
Sure everyone’s perception of frugality is different. I consider European suits, that can be hand washed, bought at a discount to be frugal. Someone else may think it an extravagance.
But ya gotta live below your means. Its simple accounting. Income – expenses = retained earnings = net worth. That’s the only way to build wealth.
Comments (1)
Excellent post, Kimber. That's why people like Michael Jackson are apparently broke despite earning millions. Or lottery winners become miserable (well, one of the reasons).
Can a person making $1 mil/year spend more than most? Yes, I think if they lived on $500,000 and saved the rest they'd be doing quite well even though that's way out of my league. If they lived on $50,000 that would be amazing. The key seems to be ignoring the extra income...
Posted by Mrs. Micah | October 19, 2007 8:43 PM
Posted on October 19, 2007 20:43