There are certain rules and sayings that are priceless and will withstand the test of time. Two plus two equals four. Don’t buy vacuums form a guy selling them door to door. Michael Jordan is the greatest basketball player ever (please there is no argument here LeBron and Kobe fans). The list can go on. In my personal finance journey, I have come across some timeless and time tested ideas as well. I have tried to make these ideas the foundation of my personal finance strategy. The first of these “Financial Commandments” is one that everyone has heard but not everyone implements: Spend less than you earn.
The first personal finance book I ever read was The Richest Man in Babylon. I thoroughly enjoyed this book because it was short, it was simple enough being a personal finance newbie, and it also imparted the strongest message for me regarding personal finance: spend less than you earn. The books use of parables about the “virtue” of not spending all that you have in your pocket versus spending everything that you get was really refreshing and was easy to apply to my life.
Not spending your entire paycheck right away doesn’t inherently give you any rewards. It just leaves some extra money in your bank account. In fact, you immediately receive less because you don’t use all that money to buy whatever you want. But what that unspent money represents is very powerful. It gives you the freedom to use it in any way you want. If you want to use it as a buffer in your checking account, that is fine since some people feel more comfortable with that. If you want to eventually transfer it to a savings account, that’s great too (this will lead to a future Financial Commandment). If you just want to give it to your favorite charity, that is wonderful also. The bottom line is, that money you set aside can be used for whatever you wish. It represents financial freedom. And the more financial freedom you have, the more potential you have for a happy financial life.
It’s also worth noting that before the age of credit cards, car loans and home mortgages being the norm, it was actually a lot tougher to spend more than you earn. The cash that you had in your pocket or your basic checking account was all you had. Those were simpler times, and most probably less stressful times finance wise. People had to live within their means because that’s all they could spend. Give someone a tool such as a credit card, and living beyond your means suddenly becomes a lot easier. We can use this as a lesson for us to try our best to live within our means and to only use financial tools such as credit cards and loans in reasonable and affordable ways.
Feel free to comment below on this Financial Commandment and how it has shaped your financial journey.