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The gateway to financial freedom

It’s the step before a savvy savings strategy.
Adopting the 'spend less than you earn' habit can go a long way and ripple out into other spheres, helping you save more over time. Image: Shutterstock

Okay kids, we need to talk. Please, have a seat and listen up.

I have become deeply concerned, because I’ve heard there are some people going around telling you that you should try ‘spending less than you earn’.

Now I’ve been there and I know how it goes.

“Just try it,” they say. “What’s the worst that could happen?”

It all sounds so tempting, and some of your friends may have even started doing it. But I need you to stay strong and resist the peer pressure. You need to fight this.

Now you’re probably thinking, what’s the big deal? Surely a little ‘spending less than you earn’ on the side is just some harmless fun? No. The problem is it doesn’t end there. It is going to lead to some much bigger issues.

The next thing you know you will be onto something worse – like paying down your debt. And I have seen the slippery slope from there. Before long you will be doing some building of an emergency fund, and that is usually immediately followed by a little mild investing. And then I shudder to think that, from there, you will have no choice but to get into that hardcore wealth-building stuff that is so dangerous. Worst of all, you may even become financially free.

Ask yourself if that’s worth it? Do you really want to throw away a whole future of consumer debt, sleepless nights, and praying you have enough money to retire on? And for what? Some silly debt freedom and financial security? So please, I am asking you not to give in to this whole ‘spending less than you earn’ temptation, it’s really dangerous.


It all starts with spending less than you earn

Keeping your expenses below your income is an incredibly powerful weapon if you want to get ahead with your finances. It doesn’t matter where you are on your financial journey, if you can consistently free up some extra money each month, there is a massive opportunity to take your finances to the next level.

Once you have some extra cash available each month, you suddenly feel the need to find a new home for this money. And because it is money that you have likely made some sacrifices for, you want to make sure you put it to good use.

This may lead to you asking yourself some questions about how you can get out of debt. That curiosity may lead you to finding out about the debt snowball and debt avalanche methods of destroying debt.

Read: Destroy your debt in 10 (not-so-easy) steps

Being debt-free then results in even more extra money becoming available every month.

You suddenly realise that maybe you should start saving some money for a rainy day. Next minute you are researching about using your home loan as a savings account, and which savings accounts pay the best interest. You become aware of emergency funds and the incredible protection they can offer you.

From there, your curious mind starts wondering how you can get your money to work harder for you. You start checking out how to get started investing, and what you should invest in.

After that, you realise that you should probably be investing in a more tax-efficient way, and start investigating options that can boost your retirement savings. You may even start investing for your child’s tertiary education.

And from there you could well take it to the next level and start wondering how much you would need to be financially free.

But all of this will only happen if you take that all-important first step.

In fact, in our household, getting our expenses below our income was the exact catalyst that enabled us to pay off all our short-term debt. That in turn was the catalyst to start investing more, which then led to me wondering what it would take for us to become financially free.

Now that I think about it, spending less than we earned set in motion the entire sequence of events that resulted in my early retirement plan, and is also the main reason this blog even exists.

Spending less than you earn really does lead to some pretty powerful stuff.

Once you are able to keep your expenses below your income, you will find that a door has been unlocked – and will be amazed at the financial (and non-financial) rewards inside the room behind that previously-locked door.

It doesn’t matter what your financial goals and priorities are – whether you want to save towards a holiday, get out of debt, put a child through university or create generational wealth – it all starts with spending less than you earn.

So I encourage you to get out there and try some ‘spending less than you earn – it really is the gateway drug to financial freedom. Quite appropriate then, that it was also the topic of my very first blog post.

This article was originally published on the Stealthy Wealth blog here.

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Yeah, great advice. The average salary in JHB is R250K a year. Please explain how you use that R250K to have a house/place to stay, vehicle/transport to work, buy food, clothes and necessities and put kids through school. Please Stealth Wealth, pray do tell how one manages to spend less than they earn when R250K is the AVERAGE take home. Meaning there are an abundance of people who earn well below that.

I am a follower of Mr Wealth’s but this article doesn’t say enough IMHO that is. Ok, so you pay off your debts and save 10% or 20% of your income after tax, now what? Put it in unit trusts/pension fund or RA, all generally and mostly down, the ANC extending greedy claws for the capital. Invest in the JSE yourself; another Steinhoff, Aveng, Esor etc etc wants your cash, as does SARS capital gains. Invest overseas yourself – where and at what cost?

Buy bonds or put in in fixed deposit. Mr SARS, Mr inflation and Mr ZAR devaluation will love you.

Buy property to let, Mr municipal rates, capital gains tax and Mrs PIE Act are lying in wait. Let alone declining capital value with WMC etc.

Please extend your tale to its logical conclusion of your views.

End of comments.





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