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3 Reasons I Don't Believe the Advice to 'Live on Less Than You Make'

 2 years ago
source link: https://www.businessinsider.com/personal-finance/dont-believe-advice-live-on-less-than-you-make-2022-6
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I'm a successful entrepreneur, and there are 3 reasons I don't believe in the advice to 'live on less than you make'

Jen Glantz

The author, Jen Glantz, in her home office. Jen Glantz

  • I've often been told to "live on less than you make" if you want to be wealthy, but I don't buy it.
  • I always stick to a budget and I'm careful with my money, but this advice doesn't always make sense.
  • When I was building my business, I needed to invest money I didn't have yet to get things off the ground.
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I've spent the past few years working overtime to fix up my finances after making many mistakes in my 20s, from not saving for retirement to having bad spending habits. It's almost become an obsession of mine to seek out tactics, advice, and strategies that can help me grow my net worth and streamline how I manage my finances on a monthly basis. 

As I consume financial advice and get help from financial experts, there's one tip I hear quite often: Always live on less than you make, which means that you should spend less than the amount of money you make each month from your job. 

While I'm a big advocate for sticking to a budget, not taking on unnecessary debt, and being in control of your finances so you can see the impact your money decisions have on your overall portfolio, there are a few reasons I don't like the advice that you should always live on less than you make. 

1. There are times when it's important to invest in yourself 

When I got laid off from my full-time job in 2015, I learned a money lesson I was too stubborn to understand before: Sometimes you have to invest in yourself so you can make more money.

Following the layoff I decided to go into business for myself, but there was a period when I wasn't earning any income. However, I knew that I had to invest a few thousand dollars in courses, freelance help, and digital tools so I could go off and become a solopreneur. I pulled from my savings account and put some of the charges on a 0% interest credit card. 

This spending was calculated and considered, and even though it came with risks (there was no guarantee this route as a solopreneur would work or be profitable), I knew I wanted to give it a try and took all the measures necessary to be strategic about my decisions (competitor research, audience testing, and writing out a business plan).

If I had stuck with the mantra of living below my means, I would have put off investing in these tools until I took a part-time or full-time job bringing in income to make this happen. 

Instead, I spent more than I could afford and leveraged those costs to help me start a business that, within three months, was profitable and helped me pay off the credit card and replenish my savings. 

2. It limits people to not go after other streams of income 

There have been times in my life when I've wanted to upgrade my lifestyle, like when I didn't want to have a roommate anymore or when I wanted to be able to afford to take a vacation or two a year. 

If I just told myself that I couldn't afford these things because I wasn't earning enough, then I'd be stuck with a limited mindset that didn't allow my finances and my goals to see any growth.

Instead, having an urge to live above my means has made me more passionate about exploring passive income streams, new business opportunities, and finding ways to increase growth within my current side hustles. 

As someone who is cautious about how they spend their cash, when I want to upgrade my lifestyle, I make sure I have the money first. But rather than finding ways to cut back on other spending to afford a vacation or the rental cost of a one-bedroom apartment on my current salary, I think about ways to earn more money. 

3. It's advice that doesn't apply to every moment of your life 

I'm a big proponent of sticking to a budget, but there are still one-off situations where I decide to splurge and live above my means temporarily. That might include incurring the costs of a wedding, paying for an occasional trip, investing in myself, or upgrading an item that is a big part of my life (computer, bed, etc.).

However, before taking on these costs that I might not be able to afford with cash, I make a plan for how I'm going to pay for these items without taking on tremendous debt. That might mean taking on an extra side hustle, opening a 0% APR credit card, or pulling from my savings. I always make a plan to cover my excess spending.

I understand that my perspective on this advice is unusual, but I know that with the help of professionals and my own risk analysis, following this path has only helped me expand my lifestyle and my business.

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