In the United States, the concept of wealth is often associated with high incomes and luxurious lifestyles. However, a growing perspective emphasizes not just what you make but also how you allocate and save your earnings. You can rent several high-end cars, AirBnb luxurious homes, and take a European vacation all within a year and still have plenty of money left over by saving just $10 extra a day. This viewpoint advocates for a strategic approach to personal finance, where the emphasis is on efficient money management and achieving financial stability through thoughtful saving and spending.
The Philosophy: “It’s Not What You Make, It’s What You Save”
This approach to personal finance pivots on the principle that true wealth is not measured by income alone but by how effectively one manages and saves their earnings. As financial advisor Eric Tyson remarks in his book “Personal Finance for Dummies,” “High income doesn’t automatically mean high net worth; it’s what you save and invest that matters.”
Building An Allocating Money Habit: Strengthening Financial Muscles
Just like building muscle through exercise, developing a habit of allocating money to accomplish specific goals requires little effort and discipline. Setting and achieving short-term budget goals, such as saving for a vacation or a special purchase, can be an effective way to build up the habit of allocating money. These tangible goals make the practice of saving more rewarding and less daunting. As renowned financial expert Dave Ramsey often says, “You must plan your work and then work your plan.”
Cutting Out Wasteful Spending: Cars, Credit Cards, and Commutes
A significant aspect of this philosophy is eliminating unnecessary expenses. Owning luxurious cars, keeping high-interest credit cards, and living far from work and leisure areas can drain financial resources. Personal finance author Suze Orman advises, “Don’t live life on the edge financially. Your car, your house, and your credit card payments should not be an anchor dragging you down.”
The Impact of Strategic Allocation
I dislike using the word “saving.” It automatically conjures up the drudge of denying oneself what we want now. But by focusing on allocating money to multiple checking or savings accounts for specific purposes and reducing wasteful spending like eating out more than twice a week, you can accumulate wealth quickly and more efficiently. This approach leads to increased financial security, allowing for greater flexibility and freedom in the future. As Warren Buffett, one of the most successful investors of all time, famously said, “Do not save what is left after spending, but spend what is left after saving.”
In essence, the journey to financial stability in the United States is often less about increasing income and more about optimizing the use of existing resources. By adopting a mindset centered on saving and careful spending, you can build a strong financial foundation, paving the way for long-term prosperity and security.