Keeping expenses and income separate…
Wealth Effect
People tend to spend more if they make more. It's part of the “wealth effect,” where someone spends more because they have more wealth (more income). But that gets people into trouble when that income is no longer there because they lose their job in a recession.
This is because people usually spend credit when the times are good and not cash, racking up debt. And if they lose their job during a recession, and their debt service payments are too high because of all the debt they took out, then their house or car will be repossessed…or they might get sued in court because they can't pay the credit card bill.
Credit vs Cash
People spend credit during the good times because it is much easier and faster to get access to more money than they have in cash. Plus, people do not look at credit the same way they do cash. Credit wasn't originally their money, so they don't attach as much value to it, so they spend it faster.
Cash, people had to work for, so they hold much more value to it. Therefore, they want to hold on to it, and just spend other people's money (credit), even though credit, technically, must be paid back from future cash (that one earns).
Building Wealth
Bottom line, income should have nothing to do with expenses and expenses should have nothing to do with income. They are completely separate issues. Just because you make $500,000 a year, does it mean you have to spend $500,000 a year.
Living modestly, and not having your income or wealth determine your spending habits, is the fastest way to building wealth. Because how you build wealth, is your make more, but spend less or the same, or at least have a growing spread between the two. So that increase savings can be put in capital assets that accumulate in value over time.
If you always match your spending to your income, you will never build wealth. Because at the end of the day, buying that red Corvette or $5,000 purse, is not going to make you happier than having a comfortable retirement. So you might as well save it, stick it in Bitcoin, and be a millionaire in 20 years :)
Stay frosty people
35% allocated to ph-fund
Hi, friend.
It is a way of keeping a good account of our economic income and expenses, keeping them separate, if we have good administration it will give us results, it is very sad that we waste our income without measuring risks.
Greetings
Yeah, I agree @sandracarrascal.
Hi @fijimermaid, maintaining a balance between income and expenses is very important in the economy of any person, because if the balance leans more on expenses than on the money that comes in, it is certainly reason to worry, since you would not have how to cover those expenses.
However, on the other hand, if you use the system of saving a part and spending less than you earn, little by little you will ensure a stable retirement in your future.
Regards
Agree :)
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Hi @fijimermaid
It is interesting to see how people tend to spend or shall I stay splurge more when they have more.
However there are also those who borrow and spend.
They use their credit cards and loans , scrape to pay the minimum and sometimes get into a deep debt loop.
Sad but true. Though a bit off the main topic but it made me think of those as well
Totally on topic...I agree.
It is a very good post, especially for each and every one of the truths discussed, few are prepared to take advantage of the income, whether it is the necessary or the surplus.
I agree. And thank you @gustavomory2.
Very nice post especially for us as a crypto community. Honestly, I fell into the overspending trap at one point during the past bull market, luckily I hit the brakes in time...
Thanks for sharing :) @fijimermaid
I've done the same...important lesson to learn.
This is an intersting suggestion. I can see how it can motivate yourself and what benefits it brings.
Very interesting read! :)
Thank you @ga38jem.
As humans, we are always tempted to spend more when we earn more, it is best to spend below our income all the time and then have an emergency wallet that can sustain our lifestyle after months when things are down until the time when recovery happens.
Agree.
Having a seperate wallet for income amd expenses, will make it easy for funds calculation to be done appropriately. Building wealth is spending less than is actually earned.
Yes :)