I think it was Charles Jaffe who once said:
“It’s not your salary that makes you rich, it’s your spending habits”
There’s a lot of truth in this statement.
Regardless of income, bad spending habits can easily result in financial ruin.
There are numerous celebrities I could list who have ended up not having two pennies to rub together, even though they earn in a week what we might earn in a lifetime.
But how is this possible?
It’s easy, money is designed to flow and those who lack knowledge of money or the discipline to control it will let it flow away from them faster than it arrived in the first place.
For the Rich the Numbers are Just Bigger
At risk of repeating myself, this happens regardless of income, make no mistake about this. If you have bad spending habits and money problems earning £10k a year, you’ll have bad spending habits and problems earning £10m a year.
The only difference is that the numbers are bigger, sometimes much much bigger.
I tried not to name any specific examples earlier but I fear that you may not believe me unless I do, so here’s just a few:
- Mike Tyson – earned $300 million then filed for bankruptcy
- Burt Reynolds – filed for bankruptcy with debts twice the size of his assets
- MC Hammer – filed for bankruptcy with debts of over $12 million
- Michael Jackson – reportedly died with $400 million worth of debt
Trust me, the list goes on. Just Google ‘broke celebrities’. It’s quite surprising what you’ll find.
The First Rule of a Business Mindset
If there’s a first rule of a business mindset it has to be to sort out your spending habits and live within your means. Learning about money and having the discipline to control it and keep hold of it is vitally important.
There’s little point increasing your income if you don’t keep hold of the money. Sure, you might have fun blowing it all but where does that leave you when it’s all gone? Where’s the freedom in being heavily in debt?
The fundamental problem is that people live beyond their means. This leads to parasitic debt, which means they have to work more to pay it off, which eats up their freedom and time.
Working harder and longer makes people want to ‘reward’ themselves by buying something nice, again using money they don’t have.
The cycle repeats itself.
If you’re spending more than you earn then the very first thing you need to do is reduce your unnecessary expenses, then cut up your credit cards and pay off those debts.
Until you do this there’s no point increasing your income or doing anything else business mindset related, it will be wasted. May I refer you again to the list of examples above if you doubt this.
Living Well Within Your Means
Once you start living well within your means you’ll regain your peace of mind, freedom and that feeling of security. If you want to make use of your spare cash, it opens up many opportunities, Purchasing Assets being just one of many.
Surely it’s better to have the cash in the bank, or in assets which are earning you money rather than having parasitic debt biting at your ankles for the next 20 years.
That’s the choice you’re making when you buy all that fancy ‘stuff’ you don’t really need and can’t afford.
I’m not a big film lover but I do remember a great quote from Fight Club which stuck with me since I first heard it years ago:
”Advertising has us chasing cars and clothes, working jobs we hate so we can buy sh*t we don’t need”
If that was my quote I’d have added “…with money we don’t have!” to the end.
As a consumer this is a bad situation, working jobs we hate to buy stuff we don’t need but many of us do it.
On the flip side, being a business owner who is advertising his/her products to this type of consumer, is far better situation to be in.
I think there’s a good lesson there too, to be more of a producer and less of a consumer, but that’s another topic, for another time.
Hopefully you enjoyed reading this and learned something useful from it. Feel free to comment.
