earning more doesnt help if you dont spend less

April 1st, 2008

Earning More Doesn’t Help If You Don’t Spend Less

In November of 2003, my spouse and I hit our financial low point. We’d relocated for employment for my spouse that May, leaving my employment behind, and contrary to our optimistic outlook on my employment prospects, I hadn’t been able to find a full-time position since our move. I had done a few part time temporary jobs through an agency, but the economy in the state we’d moved to was in such bad shape at the time that I couldn’t even get employment at one of the “big box” stores.

The financial low point came in November 2003 because that was when we faced up to the realization that my spouse wasn’t bringing in enough money to pay our monthly expenses. Try as we might, we were just coming up short every month and using credit card convenience checks to fill the gap. At that point, we cut back our spending to the bare minimum we needed to pay all our bills, and I networked and networked until I found another part time position through the friend of a friend for the tax season (receptionist in a CPA office) and I had some leads on employment online from home after that was over (I was pregnant and due in late June 2004).

If only we had kept our spending cut back to the minimum, I might never have been in the position to start this blog last June, because we might have made real progress and already been out of debt. But as our income increased, so did our spending. Never to the point that we were spending beyond our earnings, as it had in the past, but as I brought in money, somehow we still didn’t have any left over. We easily slipped back into the place we were at, where we weren’t living extravagantly, but we also weren’t living frugally, and our lifestyle was beyond what our incomes could provide if we wanted to truly get ahead. We did make some progress on our debts, but it was slow, and could have been a lot faster if we’d done something like devoted 80% or 90% or even 50% of the income I was bringing in solely to debt reduction. I’m not really sure that we devoted even 10% of it to debt reduction beyond what we were already paying from my spouse’s salary.

Earning more is definitely a big part of the equation if you are in a position where you are barely getting by and want to start making solid forward progress. But if it is not combined with spending less, it won’t help as much as you’d think. Our success this time so far has been due to my ability to earn more, but also our budgeting and keeping track of those earnings, so that we truly are spending less. The extra money I earn can be diverted to debt reduction instead of evaporating into miscellaneous things that never seem to be that much, until you add them all up. Which we never did – but now, we do.

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11 Responses to “Earning More Doesn’t Help If You Don’t Spend Less”

  1. I “knew” this for a while, of course, but I first really brought it home when reading Jean Chatzky’s You Don’t Have to be Rich. She does an excellent job of making it real through examples.

  2. This was one of the hardest lessons for my husband and I to learn. We were always excited to get a bonus or extra money in a paycheck because it meant we could spend more. Now that we’ve changed our attitudes we put any found money towards paying off debt. Our stimulus check, though, is still up for debate on what we should spend it on. Most likely we will split it between paying off debt, savings and a splurge or two.

  3. It took a while before that eventually got through to me. And as I got into more financial trouble, all those financial experts started making A LOT of sense! You know, stuff like “it’s not about how much you make, it’s about how much you keep”.

    So much sense in fact that I put an entry on the topic on my blog, titled “The Size Of Your Bank Account Doesn’t Matter” (click on my name to read the post)

    Many many people would benefit from that kind of advice. Earning more is not a license to spend more. You’ll never get ahead until you get your spending in check

  4. I absolutely agree with this post. I have a friend who sometimes questions me about all this “frugal crap” I do. He thinks the best way to build wealth is to make more money. I point out to him that the problem with simply earning more is that our “needs” tend to expand to fill the gap.

    (In that way, it’s interesting how well our brain auto-calculates how much leeway we have in our checking account. Or, auto-over-calculates, I suppose).

  5. Thanks for the look back, especially for newer readers like myself! I’m so impressed with how far you’ve come in a relatively short time. Your energy is really inspiring.

    The whole spend less calculus is fianlly sinking in for me too. After a year and a half of thinking I was making progress on my debt, but not seeing any progress, it’s been so great to reduce the debt by over $1,000 in just two months. You’re right that earning more doesn’t matter at all if you don’t spend less!

  6. I have been in the same boat. And the boat almost sunk!
    I managed to bail it out.

    Now, my spouse and I do pretty well for a middle class, struggling to get enough money for retirement in a falling market, couple.

    Glad you are, too.

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