By James E. Wilson via Iris.xyz
Most people realize that no matter how much you exercise, you can’t out exercise a bad diet. The same principle applies to investing; you can’t out invest poor spending habits. The grand majority of emphasis, from advisors, financial media, and investors, is on the wrong side of the wealth equation. Most of the attention is on investment performance and returns, not spending. The problem is bad spending habits outweigh good investment returns.
One of the foundation concepts in economics is that spending rises with income. This is sometimes called “lifestyle creep.” As you make more money, you spend more money. You buy a better, bigger house; you spend more on travel; you spend more on your family. Your financial future, however, depends upon not spending some portion of your income.
I used the noun “habit” in the title purposefully. A habit is “a settled or regular tendency.” Habits are often hard to give up. It’s easy for a certain level of spending to become deeply ingrained and difficult to change. Spending decisions are usually made in the moment and often automatically.
Every financial resource that we have is finite, it’s limited. In order to control spending, you first have to step back and look at what’s important to you today AND what you think will be important in the future. If you overspend and therefore don’t save, your financial future will likely be bleak.
Are You Overspending?
Particularly for individuals preparing to retire in a few years, it is important to have clarity on spending. Think about items that are “must haves” and those that are “nice to have, but not crucial.”
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