When was the last time you felt rich? How would you feel if you made four times what you spend? Would you feel better if you had a little more breathing room? Someone making 100k but spending 120k won’t feel relaxed for long. But making 90k with typical expenses of 30k a year will give you plenty of comfort and options. The difference between what you earn and what you spend is the key to feeling rich.
When I was a teenager I worked at a summer camp as a counselor. We got paid less than minimum wage but our housing, food and entertainment was provided. Not only that, being quarantined at camp (not too unlike the military) provided little opportunity to spend any of the money we actually made.So, after a few weeks of work we received our checks and promptly went to the bank to get them cashed. 18 with no expenses and $700 cash. I felt rich. Do you feel rich? Even if your income has increased over the years, have you increased or decreased your margin? There is a strange but observable tendency for Americans to increase their expenses even as they grow their income. This net effect can often lead us to feel financial pressure despite growing incomes.
What does it feel like to live without any margin? It’s like running in sand with the wind against you. It’s like being on the edge of a cliff without a parachute. It is that constant anxiety that puts pressure on relationships and cuts the joy out of life. Without a buffer, small bumps in the road become problems and emergencies are compounded by the accompanying financial emergency. Living without a gap between what you earn and what you spend is quite stressful. Debt, even student loan and house debt, can put enormous pressure on your financial picture. Having payments decreases the gap between what you make and what you have left. For too many individuals, monthly fixed expenses are far too high a percentage of their income.
Like so many other financial concepts, margin begins with simply paying attention. It starts with addressing the fact that you must spend less than you earn. For most people, myself included, there is power in attacking financial freedom from both ends by earning more and spending less. The general tendancy among financial writers is to work on spending less. Overall, this strategy is a great place to start and can be implemented immediately. But often, in long term planning, working on the income side of the equation can be just as important. The benefit to spending less is that it dramatically lowers the money you need both now and in the future. The duel compounding adds the freedom we all desire, and makes the prospects of financial independence a realistic reality.
One of my favorite ways to dramatically increase my margin is to limit my fixed expenses. That means staying away from contracts (cell phone, cable), not having a car, minimizing my housing costs, and paying off all of my debt (including our primary residence).For most people, simply not having any debt or payments would make them instantly feel incredibly rich!
Focus On Big Wins
Cutting lattes or cable are both nice, but big wins happen when you get a 10k raise without inflating your lifestyle. Or moving to a house that cuts your expense and transportation costs in half. Or even selling one car and going car lite. Dramatic changes in your income or expenses can make you instantly feel rich.
Where do you live? Housing and your commute are often 15-50% of one’s monthly expenditure. So for most, they make up the largest portion of cash flow. My advice would be to consider margin in the equation when choosing where to live or even the neighborhood of where you currently live. If housing and commute are 50% of your income, you have a lot less to do fun stuff than if you were only spending 10% of your income. Making 100k in San Francisco with expenses of 75k will give you a lot less room than making 90k in Atlanta with expenses of 35k.
What Do I Do With All This Extra Money?
Personally, my goal with money is to buy opportunity, time, and freedom. For me, this means reducing my expenses to as little as possible by paying down debt and housing. Even if I’m not spending money, knowing that I have it if needed provides me with a sense of peace and comfort.
Practice conscious spending. Margin gives you the flexibility to have money for emergencies but also give you the freedom to try new things and move quickly on opportunities. Having margin helps me sleep well at night and I simply enjoy the freedom of not seeing all my money go away before I am able to enjoy it. So, if you want to feel rich, work on expanding the gap between what you make and what you spend! If the topic is interesting to you, or someone you know could use a little more margin, Richard Swenson has written an entire book about the concept and Andy Stanley has several messages about the topic as well.