If this sounds like you, don't feel bad. It's a really common situation that most of us have experienced, and usually we aren't even aware of what we're doing to cause it.
First things first, we know life happens. Unexpected bills and greater responsibilities can mean more spending. What we've written below refers more to the extras, the things we don't need to spend money on.
So, there's this thing called Parkinson's law. Without getting too far into it, the law says that "Work expands so as to fill the time available for its completion." This basically means it doesn't matter how long you give yourself to complete a task, 1 day, 1 week, a month - whatever time limit you set, that's how long it will take.
This law seems to apply to other things, too. The bigger our house, the more stuff we'll accumulate to fill it up. The bigger our plate, the more food we'll pack it with, and subsequently eat.
In a financial context, the more money we have, the more we seem to find things to spend it on. Living our entire lives like this means we'll probably never get ahead financially, and will live our lives paycheque to paycheque.
So why do we spend more when we earn more?
Essentially it comes down to our relationship with money, and our lack of transparency over where it goes.
Us and money.
Let's say you get a new job and go from receiving $650 cash into your bank account each week to $900. Fantastic. Now, there are a couple of legitimate expenses that might come with that. Maybe the job is further away, so transport costs a bit more - or you might need to upgrade your wardrobe. But fundamentally, there is no reason you shouldn't be able to save at least $200 extra per week than you were before. It's just... you probably won't.
Now don't get us wrong, we're guilty of this too. See, the issue is in our thinking. As soon as we hear the words "pay rise" many of us start making a mental list of all the great things we can now afford. This might seem okay to get us to a certain "level" of comfort - but the problem is, it never stops. There will always be something to upgrade, something better than what we currently have. Unless we change our thinking, it doesn't matter how much more we earn, we'll continue to spend all that extra money - and never reach our financial goals.
The transparency thing.
"You really should have a budget" - we hear this often. But it's so important that we're aware of where our money is going each week, each month - instead of pay-waving our way through life without a care in the world.
A budget is essential, and we have a great tool for you a little later in this blog.
There are a few other things that trap us in to overspending
- Online lay-buy services
- Hire Purchases
- Apple bringing out a shiny new iPhone that no one actually needs
- Qualifying for higher levels of debt, such as a credit card or big mortgage. A bank or financial institution being willing to loan you money, doesn't necessarily mean you should take it.
How do we stop it?
1. Look at all your spending from the last 2-3 months. That is, take a good hard look at your spending. What is essential, what isn't? Do you remember when you used to live of $300 a week? What are you doing differently now? We're not saying live off bread and water, but be practical about what you need vs. what you want.
And one thing, don't discount something from your analysis as a "one-off" big purchase, like a holiday. Because chances are, you'll have more of these coming up. You're better off accounting for ALL your spending, and then making a "holiday fund" bank account where you put a set amount aside each week.
2. The best way to break that annoying Parkinson's law? Limit your spending. The only way: Make a budget, and stick to it. We know, you hear it all the time. But there's a reason for that. It makes you cut the crap, and become accountable for where your money is going. Sorted.org has a really good budgeting tool you can find here. Go make one, and set yourself a goal of sticking to it for 8 weeks. See how you go.
3. Talk to a financial adviser. We say this a lot too, but their help is free, and they often have some really good ideas. For example, if you have a mortgage and a decent amount of credit card debt, they might suggest you move the credit card debt (on which you're probably paying interest of over 18%) and turn it into mortgage debt (which is probably somewhere around the 4.5-6% mark).
There it is. A brief explanation of why we often find ourselves with less, when we're earning more - and a few practical steps to help you get past it. If you have any more questions, please just get in touch.