I remember my days back when I was about 7 or 8 years old. I started my own business, so to speak, cutting grass in the neighborhood. I had just finished cutting a neighbor’s grass, and life was just grand. There was the smell of fresh cut grass in the air (what could ever be wrong with that?) and I had a fresh $3 in my pocket. Yes, back in those days, my going rate was the whopping sum of $3 per yard. It took me about an hour per yard. And that $3 in my pocket made me about the happiest kid on the block.
Obviously, at that point in time, I had no expenses. So, the only thing that ever came to my mind after cutting each and every yard was one thing and one thing only: Baseball cards. I was a fanatic to no end. I collected every single year, and I couldn’t get enough of them. I had to complete my set each year, and it really didn’t matter how much I had to spend to get my complete set.
Each yard I cut meant another walk down to the local grocery store for more packs of cards. The process, in my mind, was simple. The more grass I cut, the more money I made. The more money I made, the more baseball cards I could buy.
It was a very rational mantra to live by as an eight year old. Many years later, and after many discussions with people about money, a certain theory has always popped up in the conversation. I have no idea if there is a technical name for it, but basically, it involves spending up to your level of income. What it means is that as you make more money; you will naturally spend your money, and therefore never REALLY get ahead. As I hear this theory discussed, it is talked about like it cannot be helped and is simply a part of human nature.
How wrong can that be?
I mean, seriously. Are we all that mindless and stupid? Have we no will power to stop the endless flow of dollars out of our wallets? Is it simply impossible to get ahead or to save for the future?
The answer is a resounding “no.” Other than eight year olds who cut grass for a living and buy baseball cards, this is the dumbest idea I have ever heard. It most certainly is possible to keep your spending in check as your income rises, and is a fantastic way to plan and save for your future. I mean, why wouldn’t you? For most, as soon as you see your level of income rise, I’m sure your initial reaction or urge is to go out and spend some of it. After all, you deserve it, right? My recommendation is to simply put off this urge until you get a few other things accomplished.
In the year 2000, my annual salary was roughly $40,000. I was a manager at a restaurant. I did not live paycheck to paycheck, but I was by no means ahead of the game. I paid my bills each month and had a little left over at the end. I had no real savings, no 401K, and no plan for the future.
Over the course of the next three years, my income rose to approximately $50,000 per year. Having never heard of this hypothesis of spending up to my level of income during those three years, I did a very good job of keeping my spending in check. The results? Briefly:
- I paid off the very last of all of my debts and was completely out of debt other than my home mortgage.
- I started, and was able to maintain a 401K plan with a 5% contribution from each paycheck.
- I had right around $10,000 in the bank. At the time, I was very much into international travel. Using a portion of this $10,000 allowed me to take two trips to Russia and one trip to Paris.
- I started a Roth IRA and contributed at least $3,000 annually.
This idea of spending up to your level of income is a self-fulfilling prophecy. If you think that is what will happen, then of course, it will. Better yet, why not put a hold on your spending during these times when your income is increasing. Rather than spending it as it comes in, why not build it up, set some aside for your future, and then decide what to do with the rest. You may be able to afford all the baseball cards in the world, but you’ll be cutting grass in the neighborhood for the rest of your life.
As always, your comments and suggestions are appreciated below.