They say that it’s a good problem to have, just like running a business and having too many customers. I came across a brief conversation (on Facebook of all places) where a fellow UBC alumnus was asking why she was “so poor.” She says this a little ironically, of course, knowing full well that she is in a much better financial situation than a large number of people both in our city and around the world.
Not Exactly Starving
I won’t name names, but she has been able to sustain a reasonably well-paying full-time job and she currently owns a relatively modest apartment in a good part of town. With tongue in cheek, she pondered whether the reason why she was “so poor” was because she enjoys eating out and shopping. Certainly, those can bite into one’s budget quite quickly, but it’s more likely that mortgage and strata payments are taking a bigger chunk out of her paycheque.
As I said, realistically, she knew that she wasn’t all that poor, but it took a bit of a reality check to realize it. What we quickly concluded was that she was falling into the pitfall that many of us do: make more money, spend more money. As soon as you get a new job that pays better than your old one, you may feel more inclined to buy fancier clothes or go out for fancier dinners. That’s understandable and its human nature. However, from a financial standpoint, it may not make the most sense.
A Matter of Perspective
Speaking from my own personal experience, I can say that I also fell into the same pitfall during my university days. Prior to starting the co-operative education program, I had not held a full-time job. I was “just” a student, after all, so I held part-time jobs here and there. After landing two full-time positions, however, I found that I was starting to accumulate a little bit of wealth… relatively speaking. I saw my bank account “swell” to a few thousand dollars.
I saved some, to be sure, but I also spent a fair bit on eating out and on modifications for my car. It’s debatable whether this was money well spent, but it did bring me some happiness. The same thing can be said when I embarked on this freelance writing journey for the first time and saw a consistent income coming through the door. Expenses increased again and, as mentioned above, this isn’t necessarily a good thing, especially if said expenses are largely unnecessary.
Live Below Your Means
If you manage to make $100,000 a year, but you spend $120,000 a year, you’re going to feel poor. If you make $1 million a year and you spend $2 million, you’re probably still going to feel poor. Yes, making more money can help with a lot of situations, but it won’t — in and of itself — solve all of your financial issues.
Instead, the key is learning how to live below your means. Taking the same example of the $100,000 job, try to spend much less than that and still sustain a relatively reasonable standard of living. You’ll find that you can actually save money, be it for your children’s educational fund, your retirement fund, or what-have-you.
By doing so, I feel you’re less likely to feel poor, comparatively speaking, because you can see that your savings are actually increasing and that you’re not living paycheque to paycheque… regardless of the size of said paycheque.
An article I read somewhere termed this phenomenon the “New Poor” to described young executives with good-paying jobs and high spending power. They are asset-rich but cash-poor.
Personally, it all boils down to living and spending within our means and to instil in oursleves the discipline to save.
Whatever happens to “save for a rainy day”? Is this phrase even relevant today?
Great post, Michael. It got me thinking about a conversation my husband and I have over and over again. We talk about being “house broke”. We’ve been fortunate enough to buy first an apartment and then, 12 years later, we sold that and bought a house. Both times, we went through a two year period of adjustment as we figured out how to live in our home within our means. The move to the house was a bit more complicated because we also had daycare expenses and my (then new) self-employed status. Although the real estate investment in a home was important to us both it also prompts us to reevaluate how we are spending. As you suggest we need to learn to “live below our means” each time. Your post prompts me to take another look at how we are spending our money and see if there’s any more unwanted debt on the horizon. Thanks for your thoughts.
Best,
Angela
I agree. Living below the means is a very good idea. I love seeing my bank account swell and the security it offers! Currently, I have every reason to save as much as money as possible. A mortgage to pay, a baby is coming, a plan to buy my parents an apartment. Apart from saving, I must open more sources of income!
Absolutely you must live below your means. But we as citizens have to live by a different set of rules than the governments that set the rules. They are allowed to spend more than they take in without the same consequences that we do as a normal person.
It is basically the same in the business world and unfortunately the rules are stacked against us because the lawmakers that we vote into office are lawyers or rich businessmen and women that are looking out for themselves and not for us.
It is such simple advice, but some advice too many people don’t take. Great post!
This article is an example of famous saying, a penny saved is the penny earned. Althought it is really impossible to save money in this time of recession, but still we can try to save and invest for future.