This is one of the most important facts to remember: It doesn’t matter how much your income grows, you will always outspend it—unless you are militant about avoiding the drug.
And by “the drug” I mean the allure of buying stuff you don’t need. As a society we have an addiction to buying more things. We get a nice dopamine hit whenever we purchase a shiny new object. Of course, the high wears off after a bit and then we look for the next purchase that will bring us happiness.
We all know this to be true, but we don’t like to admit we’re entirely caught up in it. I’ve certainly been guilty myself. Our whole economy thrives on getting us to buy more, buy more, BUY A LOT MORE! All the while putting our personal finances further and further down the crapper.
So how do we break out if it? First, as I’ve mentioned, put a predefined chunk of every paycheck into a “financial freedom account,” so you won’t spend it.
Then focus on finding your happiness in things that don’t revolve around buying stuff. Seek out family activities, affordable projects, and hobbies. Another thing that I’ve found to be very effective is setting goals. If you are working toward a goal every day that you’ve deemed worthwhile, you aren’t so focused on wanting more junk.
Now, the natural reaction to realizing you are outspending your income is to say, “Well, I just need to earn more.” Yes, earning more is good. But stopping the spending has to come first. You see, a high percentage of people with giant incomes are deep in debt because they never learned to quit buying more toys. That’s why lottery winners usually end up in bankruptcy.
You will notice a lot of big, flashy financial books and sites focus entirely on making more money, especially the famous mantra of creating multiple streams of income. The problem is that they make it sound like you can just open an online store or start a multi-level marketing business and boom, you’re rolling in Benjamins. But the truth is, people are not waiting out there to start handing you bundles of money. Making extra money is hard. Not only do most of these endeavors fail to pan out, but you can spread yourself way too thin. That is why I believe it is best to rely on passive income, through investing, as a secondary source—even though it takes time to grow, and focus on spending less and growing a primary career.
That said, I’m not discouraging anyone (including myself) from pursuing dreams in their spare time. Just don’t depend on it, and remember, the people who manage to build wealth are the ones that consistently keep a cap on their spending, even when their income increases.