The Money You Earn Won’t Make You Wealthy

Ask whoever you want: Nobody out there would pass if you would offer them to have some extra money. And if you tell them they can have a continually increasing wealth, they will most likely cheer and hooray.

I mean, why not? More is always better than less, right? But how do we make this miracle move work?

“If you would be wealthy, think of saving as well as getting.” Ben Franklin

Like Ben Franklin already knew, earning much won’t make you rich. You can make six-figures and still be broke. It’s all about spending and building a system around your spending habits.

I don’t want to tell you to be obsessively frugal and pass on every joy of life. My point is all about balance: If you’re aiming to have some spare money at the end of the month, your earnings have to exceed your spending. If you want your fortune to increase, you have to meet this goal consistently.

In this piece, we focus solely on the expenses side.

What are we looking at?

Taking control of your expenses means to do a substantial inventory check in the first place. Where is your money going every month? I recommend starting with the bank statement for the last month.

Look at every payment that is going out.

Are there automatic money transfer orders in place which charge you recurrently with the same amount?

Do you have creditors that are allowed to withdraw open bills directly from your account?

How much cash do you withdraw?

Are there any transfer orders carried out by yourself to settle an invoice?

You will also need a receipt from your credit card company to determine where you paid with your credit card the last month. Go over it with the same methodology you checked your bank statement.

When it comes to cash, things get a little complicated. I don’t ask you to remember every cash expense of the last month. You can see in your bank statement how much cash do you withdraw regularly. You can track cash payments with free apps, but in the beginning, we want to know an approximation.

Unfortunately, just seeing your expenses is not enough. I want you to categorize your expenses. You can lean on the following questions, but I highly recommend defining your own categories as you are the person who knows your life the best.

Which expenses are recurring and the same amount every month like rent, insurances, and utility bills? Let’s refer to these in the following as fixed costs.

Do you have an outstanding debt that you are paying off?

Which expenses are not defined by a fixed amount? Let’s refer to these as variable expenses in the following.

What are living expenses like buying groceries, clothes, and gas?

Which expenses are carried out for leisure purposes? I refer to these as going out, eating out, and having the occasional coffee-to-go.

What are other lifestyle expenses? Do you maybe have bought some video games or entertainment gadgets?

What are expenses exclusively related to traveling (hotels, flights, rental cars) and vacation?

Altering your fixed costs

Now that you have a solid overview of your expenses, you can move on to adjust them to meet your goal. Remember, I want your earnings to exceed your spending.

Let’s start with the significant parts and don’t leave an expense unchecked. Your first and maybe most considerable expense would be rent or mortgage. It’s up to you to decide if it will fit your current life situation. Still, there is always the possibility of moving to a smaller apartment. The difference could be saved or invested regularly as a pillar of your wealth-building.

Paying off debt is not for disposition. I just would ask to consider rolling over debt. Imagine you are deep into overdraft credit, where a double-digit interest rate is relatively usual. Maybe you can convert it to a consumer loan with a lower interest rate for the sake of saving on interest payments.

Utility bills can be regularly checked if there is not a cheaper provider on the market. Saving five bucks on your electricity contract will pile up to a solid 60$ per year. That’s money you didn’t have before, which drives the balance between earnings and spending in the direction we want.

When was the last time you used that streaming subscription or went to the gym you are paying monthly? Maybe you want to quit on one or another contract you aren’t using that much anyway.

You can sum up altering your fixed costs to using one part of the economic principle. You want to minimize the effort to gain a given revenue. When it comes to a utility bill like the internet, you may get the same internet connection quality with a different provider at a lower fee.

That’s where you save. Define a level of service and then find the cheapest provider for it.

Even if you got them to the lowest fee, there might be ways to save. Do you get well along with your flat neighbors? Consider sharing the wifi and split the monthly payment.

See where I am getting there? Putting this economic principle on your fixed costs unlocks your creative potential and saves bare money every month.

Altering your variable expenses

Now you have covered the fixed amounts of your monthly spending, it’s time to get over the variable expenses. Where do you spend significant money? You may even get a little surprised how much money is spend on one category every month when you sum it up.

It’s not my wish to tell you to pass on your occasional coffee to go or quit shopping for clothes in this lovely little boutique you like so much.

Forced saving goes in the same wrong direction as forced diets: you feel miserable doing it and wanting to make up when finished. Even more, the bleak times much likely get you overcompensating and throwing away the effort you put in.

I am all about setting up a system that works for you in terms of saving and enjoying life the way you like it. This works by defining a saving rate you put away after covering your fixed living costs. The amount that is left can be cut into separate budgets for groceries, clothes, and eating out. These budgets can vary depending on your life situation and individual preferences. I don’t care how you distribute your funds as long as you stick to it.

Altering your variable expenses addresses another economic principle. You want to maximize your revenue while putting in a given effort. That is achieved by using a budget. By limiting yourself to a fixed amount for eating and going out a month, you can think of ways to maximize your experience and fun on this amount of money to spend.

Maybe meeting your friends at the park for a picnic where everyone provides some food gives you an equally good time like dining out with them at a fancy restaurant but is likely a lot cheaper. The key is to get creative here by setting yourself limits.

The Takeaway

As we’ve seen with fixed costs, defining service levels, and finding the cheapest provider to fulfill your needs could unlock your creativity and save money where you didn’t expect to in the first place.

The same goes for variable expenses: Setting up budgets and trying to get the most joy and fun out of them forces you to get creative. You will likely fulfill your needs but, at the same time, meet your saving goals. This will have your wealth growing slowly, but steadily.

Go on and get to know your financial system as well. Find out what to keep to make you happy.

Good luck and best wishes.

This article is for informational purposes only and should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions