Do you want to grow your personal wealth? If you do, then you have to start spending less than what you are earning. That is the secret to building true wealth that will not be spent in a rush.
A lot of us think that being wealthy is all about earning more money. That is why we end up spending a lot of time working and turning our backs to what matters most in life. We skip family events because there is a deadline to be met in the office. We miss seeing our children grow because we had to hop on a plane to fulfill the demands of our job. Despite all of these sacrifices, we are still far from being wealthy.
Why is that?
CNBC.com published an article that started with this sentence: Americans are spenders. That is our reputation. We spend so much money to buy a house, a car and a lot of useless junk. We also spend too much on our education. Some of us even put ourselves into debt just to keep up appearances.
The article said that we are encouraged by the government to spend just so we can say that our economy is growing. Our economy is 70% reliant on consumer spending. That is why everywhere you turn, you will see signs, advertisements and endorsements with one message: spend, spend, SPEND!
Truth be told, there is nothing wrong about spending. However, excessive spending can be destructive. Especially when you are borrowing the money that you are using to pay for your expenses.
If you think about, we are all driven by the need to be able to spend. Financial capability is what really drives us to work hard every day. It is what motivates the young ones to study. To bring themselves to a position wherein they are able to work so they have enough money to spend. Our pursuit of wealth is anchored upon our ability to spend. While it is true that being able  pay for the things that you want is a sign of adequate wealth, we have the wrong notion of how to build up our personal net worth.
The truth is, the only way we can become rich is to develop the habit of spending less.
Reasons why lower expenses help you build wealth
It may seem difficult to grasp – lower spending will lead to more wealth. But here is the main reason why lower expenses will lead to richness – you can save.
That is really how simple it is. You want to be able to save so you can put yourself in a position wherein you have abundant finances at your disposal.
You may be thinking right now that this is sort of contradictory. You will choose not to spend now so you can spend in the future? That is correct. What you actually want to do is to discipline yourself to spending less than you earn today so you can save to set up your finances so the future will not be burdened by the excessive spending that you are doing today.
According or an article published on PIOnline.com, only a little more than half of Americans are setting specific goals. From 54% in 2013, the count is now down to 51% in 2014. It is also safe to assume that not all of them are meeting their goals.
If you want the motivation to help you develop the habit of spending less than what you earn, here are 4 important reasons.
You can correct the mistakes of the past
One of the important gains to spending less is to be able to correct the mistakes of the past. The norm today is this: we work hard just so we can pay for the expenses that we have done in the past – our debts. That is not how you should set up your finances. The real secret to wealth is to spend less today so you can save for the expenses of the future. Besides, savings can complete your debt solution – regardless of the program you have chosen to use. By spending below your income, you can free up money to help pay for your debts.
You can build up your emergency fund
Another benefit that you will get from a lower spending is you can build up your emergency fund. This reserve fund is the money that you will use so you do not have to borrow money when an emergency strikes. You want to be ready for any even that could lead you to debt. Having adequate money in this fund will help you keep the stress level low despite the crisis that you are currently facing.
You can prepare for retirement
Saving for the future is very important. Sadly, not everyone believes in this. They think that they can just wing it when they get there but when you are in your pre-retirement year, you will feel the rising panic – knowing that you do not have enough money to retire. Do not put yourself in this situation. Discipline yourself today so you can build enough wealth to help you live a comfortable and quality lifestyle when you retire.
You can invest
Of all the reasons to spend less, this is the most proactive in getting you more money. When you free up a portion of your income because you are spending less than what you earn, this is extra money that you can invest. It can be invested in stocks, bonds or even in real estate. This is how you setup your money so you it can earn you extra income. Make your money work for you. This is an effective first step in building your wealth.
Tips to lower your spending
Of course, when you are used to consumerism like we are, spending less is not that easy to implement. In fact, MarketingWeek.co published an article that compared how Americans and the British differ in terms of spending. Their finding revealed the following facts:
- Americans are more comfortable in spending money – even if it is not their own. The credit industry is relatively larger compared to its UK counterpart.
- Americans are positive in their perspective of the future and that makes them less cautious of the repercussions of their debts.
The problem with the spending of Americans is a lot deeper than we think. It is a cultural thing to spend more than what we are capable of. But we need to stop those bad spending habits and that could take a lot of work.
Here are some tips that can hopefully help you correct your ways so you can practice spending less to build up your wealth.
- Set up saving goals. This will give your financial life direction and will guide you through every decision that you have to make.
- Create and follow a budget plan. This is how you can reach your saving goals. You want to know where your money is going so you can decide where you should be spending less. It is all about letting go of the expenses that are not important and concentrating on those that will lead you towards your goals.
- Avoid unnecessary expenses. No matter how small the expense is, do not spend on it if it is not necessary. These small expenses add up and soon, you would have wasted a lot of money on it already.
Spending less is tougher to implement than you think but if you really want to grow your wealth, this is the habit that you need to develop.