In personal finance, the road is long and difficult but the ideas to achieve your financial goals are ridiculously simple. You can either better manage your monthly expenses or make more money. That’s it. Nothing else. Profit is the difference between your income and expenses. Otherwise known as savings.
Too many people celebrate making more money by spending more of it. There are people who are literally poor even with a six figure income because controlling their spending is impossible. I support making as much money as you possible can. However, this post will focus more on the side of the equation that is more in your control. Managing your monthly expenses.
Making more money is not always in your control. Your bosses have to give you a promotion, you have to start a side hustle where customers may not flock to, or you have to invest which depends on the macroeconomic activity of the world. There are a lot of ways you can fail the personal finance journey. Don’t let yourself be one of the ways. Control your spending and live below your means.
I have seen countless high ranking executives struggle to get by and live a financially stressful life. They spend an obscene amount of money on wants and not needs. My last boss in banking spent $10,000 on a week long vacation for her family of four. Why? She bought everything last minute. Prices for hotel and airfare went through the roof!
Though she would try her best to hide it, I continuously felt her stress levels rising faster than the sea level. She could definitely afford it, but why spend more for the exact same thing? She could have cut her expenses by at least 20% if she planned in advance.
Monthly Expenses are Split in Two, Variable and Fixed
Fixed expenses are one-time expenses that you don’t have to buy for the next few years. They are also known as capital expenditures. It is what you need, not what you want. Things like your car, furniture, clothes, computer, phone, bed, and such.
I bought my car (model 2015) in 2016 with 39,000 miles on it for cash. I have zero plans to upgrade or purchase another vehicle in the next five years. The car should have at least 150,000 miles on it, gosh darn it!
The beautiful thing is that no matter how much extra money you make, your fixed expenses stay the same. That’s a beautiful thing. The key is to almost never increase your fixed expenses ever. If it does increase, it should be once every few years. Not once a month, a week, and certainly a day.
Whether you make $10,000, $100,000, or $1,000,000, fixed expenses should be consistent. They are what you need in order to stay alive. That’s it. No more and no less. That is taking the first step to controlling your monthly expenses and achieving financial freedom. Where the sun shines and the stress is almost non-existent.
I bought my king-sized bed for approximately $400 in 2017 and haven’t replaced it since. I bought both my iPhone and Mac in 2013 and haven’t replaced them. Furniture and clothes were approximately $3,000 in total costs and I have no plans to buy more.
As long as I am safe, healthy, living, and breathing, my fixed expenses are all taken care of.
The Other Side of the Coin: Variable Expenses
Now comes the second part of managing your monthly expenses. Your wants. Variable expenses should fluctuate month over month. Maybe one month you want to go to a concert. Another month you want to take a vacation. That’s OK! The journey to financial independence isn’t a boring one. It’s one where you go at a pace you are personally comfortable with.
To be completely clear, your variable expenses should be guilt free. It should be for something that you’ve already accounted for. Therefore, there is absolutely zero need to feel bad about spending on things you want to spend on.
Maybe you want that cup of coffee from Starbucks today. Maybe you want to eat out instead of cooking food. My guilty pleasure has always been gambling, which is a topic for another day.
Find out ways to reduce your variable expenses by buying the same things at a lower price. For example, I go to Chipotle almost every single day. It’s right around the corner and it’s delicious food at a reasonable price. I never ever pay full price.
How? I join their rewards program, which effectively gives a 4% discount if added altogether. I use my credit card to buy 6-20% discounted gift cards on top of the 3% credit card cash back. Then I use another cash back website to get cash back on gift card purchases.
On the best day, I get almost a 30% discount compared to the full price everyone else pays. No complaints.
You Control 90% of Your Expenses
Aside from an emergency medical bill or another one-time expense, you are the one in charge. You decide how much you want to spend for food, clothes, and more. That’s the most attractive feature about controlling expenses. You are almost completely independent and are not dependent on anyone else when doing so.
Making more money does fast track your way to success. However, it’s dependent on external factors. However, just remember that a penny saved is NOT a penny earned. A penny saved is approximately 1.25 – 1.33 pennies earned because of the taxes. Saving an extra $100 is equivalent to making an extra $125 – $133.
Which would you rather do? It’s completely up to you. I recommend going down the easy path first and the harder path second. Especially since the only person standing in your way to financial success is you.
I am the last person on earth to discourage you from making more money. I’ve had periods where my income increased 60% year over year which relieved me of so much burden. However, without training myself to be as frugal as possible, the 60% increase would have been worthless.
Every personal finance decision is personal, so choose wisely!
