Spend less than you earn

To enable yourself to start building wealth, you have to spend less than you earn! In this post, we will be exploring some statistics, reasons and tips on why and how you can start spending less than you earn.

Do you want to grow your personal wealth?

The number one step is to spend less than you earn! It seems to me, that the general consensus is that to become wealthy, you need to earn more income and buy expensive things. If you look at the very rich, they may have have luxury cars, massive houses and beautiful clothes – BUT DO THOSE THINGS MAKE THEM WEALTHY?

I am here to tell you, it DOES NOT! If you earn R1m, but spend R1,5m you are just as broke as someone who earns R100k, but spends R150k! You may have more luxurious THINGS, but if your income falls to zero, who’s going to pay you debt?

Sacrificing the things that matter

We are so focused on working harder so we can earn more income, so we can “provide a better life” for ourselves and our loved ones, that we skip family time, because we have to catch a flight or meet a deadline.

Despite all the sacrifices we make, we are still far from being wealthy! Why is that!?

Consumer debt and income in South Africa

Before COVID-19, quarterly consumer spending in South Africa was in the range of R1,95 TRILLION and R1,97 TRILLION

Quoting the South African Treasury:

3 billion in 2019/20, will be financed primarily by domestic capital markets. Net loan debt is expected to reach R2. 52 trillion or 49.9 per cent of GDP in 2018/19, increasing to R3. 47 trillion or 55.5 per cent of GDP by 2021/22.

According to a “South African Market Insights” article published on April 16, 2019:

The South African Reserve Bank (SARB) announced in its last quarterly bulletin that household debt as percentage of disposable was 72.7% as at the end of 2018. That is to say that almost 75% of households available funds are spent on debt. A worrying sign for an economy whose consumers contributes almost 60% to the economy.

It seems to me we, the consumers, simply have to much debt and it is eating into our income. The thing about debt is that it carries interest. The question that comes into my mind is, if you can’t afford to pay cash for something now, why do you think you will be able to pay for it, PLUS interest in the future.

In other words, you are ALREADY spending future income!

What are we taught about spending money?

We are taught to work hard so we can get a good job. Then we are taught to spend the income we make, but what is the purpose of that? Where is YOUR purpose in that?

I believe we are put on this earth for a purpose. A calling. A destiny. Call it what you want, but we were created to live freely, with freedom of choice, to care for each other and to honor our Creator – whoever, or whatever you believe in.

Spending more than you earn, traps you and limits your choices. Spending more than you earn means that you are going into debt – you owe someone something.

If you believe buying things makes you wealthy, then you are already on the backfoot. The only way to start building wealth is to learn the habit of spending less than you earn!

Reasons why spending less will help you build wealth

The main reason is that you can SAVE

It is really that simple. You want to put yourself in a position, where you can build up an emergency fund. In doing so, you make sure you have finances at your disposal. This means you are providing finances for future expenses.

This may seem a little counter intuitive at first, but if you can apply the discipline to adjust your spending habits now, you will take the pressure off from your future earned income.

Capital investment in South Africa (as a percentage of GDP) ranges from and all time high of 34,12% in 1981 to an all time low of 15,16% in 1993. At the end of 2019 it was sitting at 17,59%

The world average (based on 157 countries at the end of 2018) is 24,54%

Motivation for starting to spend less than you earn

You can correct your mistakes of the past – these mistakes being going into debt. Past expenses are one of the main reasons why we keep on working harder all the time. This is not how should set up your finances if you want to build wealth.

Living below your means, gives you the ability to pay off your debt instead of just paying the minimum and letting the interest build.

You can build up an emergency fund

I cannot stress enough how important it is to build up an emergency fund. I am not talking about having a credit card to use in emergencies. Believe me, I tried that, and it DOES NOT WORK! Before you know it, your credit card is maxed out and you still have no emergency fund, and then your fridge or car or washing machine breaks.

Once again, if you spend less than you earn, you will be able to build up an emergency fund. Not only does this give you more peace of mind, but if you can save enough money for you emergency fund, you will not have to borrow money (go into debt) when emergency strikes.

SIDE NOTE: Not having a dress for a party, or not being able to buy that steak or whisky you want, IS NOT AN EMERGENCY!

Having money available to cover the cost of said emergency will help lower the stress that the emergency may cause.

You can prepare for retirement

I used to think “Agh, I am still young, I have plenty of time to make up for the money I spend before I retire” and sadly, many people think like this. Although I am still a good 20+ years away from retirement, I look at my parents having to scale down on their lifestyle toward the end of their careers.

Now, I am not saying you should aim to retire wealthy so you can live extravagantly – of course you should enjoy your hard earned income, but if you just spend a little less now, you can build more income for the future.

You want to be able to live a comfortable, quality life when you reach retirement.

You can build other streams of income

After you learn the discipline to spend less than you earn and you have completed these steps:

• Saved up an emergency fund
• Paid off you debt
• Started to save for retirement

You will have some positive cashflow available to start generating extra income besides your primary income. This is where spending less than you earn really starts getting exciting! Now you have the freedom of choice to invest in things, or learning new skills to improve you value to the market.

SIDE NOTE: YOU ARE VALUABLE AND IT IS NOT DETERMINED BY YOUR INCOME OR HOW MANY THINGS YOU OWN!

There are almost unlimited things you could do with your surplus cashflow. You could invest in equity (stocks in a dividend paying company), or you could invest in property or you could start that side hustle you’ve always wanted to do.

The important things to remember is to keep on maintaining your emergency fund, saving for retirement and saving to invest. DO NOT MAKE RISKY INVESTMENTS WITH YOUR LIFE’s SAVINGS! Use the positive cashflow and start small! Make you money work for you.

Tips to help lowering your spending

Changing your spending habits will likely be very difficult to do, especially since you are in the bad habit spending money when you feel it is necessary. In reality you don’t really need most of the things you buy.

If you are positive in your expectations of the future, you will probably be more likely to spend money, even if it is not yours. When you make a loan or use a credit card or buy something on account, you are spending money that is not yours.

The message here is that you should understand your spending habits and learn when and why you are more likely to spend money.

• Create AND FOLLOW a budget
• Set up some financial goals
• Avoid unnecessary expenses, no matter how small.

Small expenses add up and soon you will have wasted a lot of money on it even before you realise it.

Here are some of the biggest money wasters:

Thank you for visiting

If you enjoyed this post and would like some more detailed pointers on how to set up your budget, click through to my post on Personal Finances for Beginners.

To get some ideas about different ways of creating extra income, you could download my free e-book:

or you could watch this video on my YouTube channel: Extra Income ideas while working full-time

Thank you so much for reading this blog post. Please share it, or comment with your own thoughts and ideas or questions.

If you’re ready to make some serious changes in your finances, I’d suggest you start with “The Total Money Makeover” by Dave Ramsay. Below is a link if you’d like to purchase it via LOOT: