Breaking the Endless Make-More-Spend-More Cycle of Doom

“What each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary” – The Richest Man in Babylon

When I first started working as a freelance web designer, I was making a fairly average salary.

The cost of living in my area is quite expensive, so I was spending most of what I had each month. As the years went on, I made more money each year, but I kept spending all of it.

At a certain point I thought to myself, is this what life is all about? Make more money, spend more money? Even though I had increased my salary, I had nothing to show for it. I bought a lot of stuff, but most of it was worth significantly less than it’s original price.

I came to a point where I realized that the only way I was going to save money was to deliberately live BELOW my means.

People always tell you to live within your means, but technically spending everything you have fits that description. It’s more important to live below your means.

In his book The Millionaire Next Door, Thomas Stanley describes interviewing millionaires about their spending habits. Hearing how most millionaires spend their money is shocking, but not in the way you think.

Most of them live so far below their means that no one even knows they are rich. Judging by their spending habits, you would think they are middle class, or even poor. They wear ripped jeans, live in modest houses, and drive old cars.

Many people who live in expensive homes and drive luxury cars do not actually have much wealth. – The Millionaire Next Door

I used to think that if you drive a nice car, it means you have a lot of money. Later I learned that many of the people driving nice cars are in debt, and they have a low net worth.


Net Worth

This is the most important number in assessing your financial health, it’s important you understand it.

Net worth is what you would have left if you sell everything you own and pay off all your debt.

For example, if you sell your car for $15,000 and you owe $5,00, that would add $10,000 to your net worth. Do that with all of your assets, and you get your net worth (some people don’t include your primary home in this calculation).

According to The Millionaire Next Door, your net worth should be about one-tenth age × income. If you are close to that number, you’re doing pretty good.


The typical American household has a net worth of $80,039. This low net worth means most Americans will never give themselves the opportunity to become financially free. They will be saddled by the debt of the shiny things they buy, and retire with very little to live on.

My Experience

I remember that as my paycheck grew, I would find more ways to spend it. I would be thinking about how I could spend extra money before I even had it. I wanted a new motorcycle, a nice vacation, or the new iPhone. This meant I never saved or invested as much as I should have.

Once I started living below my means, I was able to pay off $40,000 of debt, and eventually purchase my first rental property.

It took me a long time to wake up for two reasons. The first is the lack of a financial education.

I didn’t know what I didn’t know.

My dad would tell me to start putting money away, but I figured I would start doing that when I was older. Saving $100/month didn’t seem like it would make a dent in my retirement, so I just didn’t do it. $100/mo for 20 years ends up being $25,000 with moderate growth, it is definitely worth doing!

Without a financial education, I did what everyone else was doing.

They were buying new cars, toys, clothes, and even houses. I didn’t have many friends (that I knew about) that were investing 20% of their income. I wasn’t getting myself into debt, so I figured I was ok.

It wasn’t until I started learning about money management that I realized what a mistake that was. Starting early, even with small amounts, is a huge advantage for wealth building.

The second reason is that I didn’t have any goals.

I wasn’t thinking far enough into the future, I just wanted to have fun this month.

Once I got married and had to think about buying a house and having kids, I had to get really serious about my financial future.

After my wife and I started using the debt snowball to pay down our debt, we got excited about living debt free. Then we eventually had savings and we had to learn how to invest, and I got really excited about real estate investing.

It wasn’t until I got excited and starting setting debt and investing goals that I really saw big changes happening.

Think about what it would mean if you didn’t need to go to work every day to pay all your bills. Is that a goal worth sacrificing for?

How to Live Below Your Means

Never ask yourself this question:

How much can I afford?

This question is evil. If you are always pushing the limits of what you can afford, you will never have anything left over. You will buy a house that’s too expensive, a car that’s too expensive, and live paycheck to paycheck.

Instead ask yourself:

Do I really need this?

Can I drive this car for a few more years, even though it’s really old? Can I keep wearing the same t-shirts for another year, so I don’t have to buy more? Can I pack a lunch everyday so I spend less eating out? Can I save 20% of my income?

If you start thinking in “can I do without this” terms, it changes everything. You stop thinking about how you are going to spend your money before you even have it, and you end up having more left over at the end of each month.

It’s important to surround yourself with other people who have the same goals. If you have friends or neighbors who are always trying to one-up each other, hang out with them less.

Listen to podcasts about money management and investing, read great financial books like these. Go to local investing meetups. Investors are the most frugal people you’ll ever meet!

One thing that’s helped me is finding investments I’m excited about. I love real estate investing and cryptocurrencies, so I’m constantly saving my money to make another investment. This makes saving more fun, because there is a goal in mind.

Most of all I think about what it would mean if I didn’t need a paycheck. That type of freedom is worth it to me. Is it worth it to you?


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Posted by Scott

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