A few years ago, I had an encounter which forever changed my perspective on why so many of us struggle financially.
I had just come back from a trip to Las Vegas and was buying some groceries. As the person working the cash register scanned my items, we started chatting:
Him: How was your spring break?
Me: It was great! Went to Las Vegas with some friends.
Him: Awesome! Did you do some gambling?
Me (smiling): Yep, we did.
Him: Nice, did you lose all your money at the tables?
Me: I lost $50, that was my limit
Him: Well, that’s ok, money comes, money goes, you’ve got to spend it while you’ve got it!
I collected my bag, thanked him, and started walking out, when it hit me. “Money comes, money goes, you’ve got to spend it while you’ve got it.” It was...wrong. And yet, it’s the approach many of us take with money.
So, what’s the big problem with this philosophy? If you assume money will just come and go, you’ll never build savings, which is the key to financial freedom. Let’s run through a simple example.
Imagine the person working the cash register is named John.
Imagine another person works as a cashier at same store. Her name is Sarah.
If you’re skeptical, you may be thinking, so what? Sarah spends a bit less than John and probably has less fun. And saving $100/month isn’t that much money.
Let me address those concerns. Firstly, Sarah likely has just as much fun, if not more fun, than John, while spending less money.
Secondly, any amount of regular saving, even $100/month, adds up and makes a huge impact on your quality of life. Here’s how. Let’s assume John and Sarah both start their jobs on January 1st. They both have $0 in the bank when they start. They both continue in their job through December 31st. They end in very different places, both in terms of money and happiness.
John ends the year right where he started, with $0 in the bank. He’s continued to spend his paychecks as he receives them. He considers himself “broke” and believe this can’t and won’t change. He’s often worried about paying his bills on time and constantly looks forward to payday, so he can buy shoes or concert tickets he’s excited about and finally pay his bills. Worst of all, John knows that if an emergency expense ever comes up, like replacing his $250 bicycle which he uses to get to work, he doesn’t have the money to pay for it.
Sarah ends the year in a very different place. She’s saved $1,200 ($100/month * 12 months). She considers herself a saver, with a bright financial future ahead. She never has to worry about paying her bills on time, because she now always has enough money to cover this month’s rent and bills using last month’s paycheck. She knows she could buy shoes or concert tickets anytime, but chooses to buy them sparingly to continue saving. She also knows that if a small emergency comes up, she can easily cover it, then later replenish her savings.
So who do you want to be, John or Sarah? The answer should be obvious. But it’s not. Today, most Americans are more like John. In a 2017 survey of over 8,000 households, 57% of Americans reported having less than $1,000 in their savings accounts, meaning they are living paycheck to paycheck.
Remember this next time you hear advice like “money comes, money goes, you have to spend it while you’ve got it.” Many of us follow this advice and end up walking down the typical path to constant money stress, not the path to financial freedom.