Enjoy the Fruits of Your Labor

Earning a lot of money can be a blessing… and a curse.

I probably had a few people turn their heads reading that. Let me explain.

Making more money provides flexibility. It helps make things easier. It also allows you to buy more things.

It is also a curse. Make more money, and spend more money. Just because you make more money doesn’t mean you’re immune to spending all of it. In fact, it’s pretty easy. Just look at this statistic.

According to PNC bank’s financial wellness report, they say 67% of Americans report living paycheck to paycheck.

This is called lifestyle creep. It is the quiet, gradual absorption of raises and bonuses into your ever-increasing lifestyle expenses, before any of it is saved or invested. The naming is intentional since it doesn’t all happen at once. It typically happens slowly, or without you even thinking.

Here’s an example. You get a raise. What are your immediate thoughts? How much of it are you going to save? Or what are you going to spend on?

Come on. Even I think the latter with my first thoughts. (I luckily never trust my first thoughts when it comes to money).

It’s very easy to get an additional $500/month raise and then think “I can upgrade my car payment now, get that subscription I’ve been wanting, and oh I can eat out more.”

Then at the end of the month, your bank account is left right where it started, with your raise gone.

The issue here is that we immediately think spend first, and not save. This can become troublesome when we spend all that we make, and don’t save for the future. You can spend all you want now, but when that income stops, you will have nothing in retirement.

That’s what makes the opposite so important. Save and invest first, or commonly heard as “pay yourself first” and then spend the rest guilt-free. To do this, we need to set up structure so that we aren’t flying by the seat of our pants with our cash flow anymore. We want to build structure, or a blueprint of what to do with our income, so we can make sure we are taking care of our future selves, but also enjoy the fruits of our labor.

What type of structure can we implement to do this?

Here’s one practical way to break that cycle.

1. Create an intermediary account for all of your income to flow to. This is your “money pool account”.
2. Set a saving/investment number that you want. This is your “get wealthy bucket” that will help fund your future lifestyle and retirement. Typically, 20% of your savings is on the higher end but a great number to shoot for. Set up automatic contributions from this reservoir account to your investment accounts.
3. Then, understand how much money you need to live your life. You can use this link to help plan your cash flow if you need to. Think through how much you should be saving monthly for things like, emergency funds, upcoming goals like travel, etc.
4. Then set up an automatic transfer of that amount to your checking or bill paying account to fund your “lifestyle”

This flips the typical, save after you’ve spent cycle of money. Instead, we separate out your income and expenses. This makes spending more intentional. It also makes savings and investing more intentional.

The “money pool account” is the key. Instead of your job or business distributions paying you, you pay yourself instead, intentionally.

The blueprint to growing your wealth is to make sure there is a difference between what income is coming in, and what you are paying yourself. Over time, hopefully the gap widens. This allows you to save more, and live within your means.

If you are unsatisfied with what is left over after you save, you may need to re-work what you are spending. If you have to reduce what you save, that is ok too. Getting started is a win, and you can (and should) increase as you go.

If you work hard, earn money, you should be able to enjoy it. But it’s important to have a plan with it.

As I said, making more money creates flexibility. Practically, that means you hopefully have more of a gap between what your income is, and how much you spend.

The curse of making money is broken by following the above steps. It changes your habits, it changes the whole paradigm of spending.

This helps create discipline and also makes sure you have some money for when you stop working and that income dries up. Then you will hopefully be able to spend the same amount when you stop working.

So next time you get that bonus or raise, have a plan!