Acquiring Wealth: It’s Not About Your Income, It’s About Your Spending

clothes hanged on clothes rack

When I was growing up, $20 dollars was a large amount of money. Not just when I was 7 or 8, but also when I was a teenager and young adult. Because I often had to work pretty hard to earn that much.

After working hard to earn my money, I was really thoughtful and wise about how I would spend it. I’d like to say that I stuck to this mindset as my income began to increase. But that would not be true. In my late 20’s to early 30’s, I abandoned the thoughtful and wise pattern of spending. I slowly fell into a pattern of mindless spending.

It’s the Small Things

During this time, I spent money on several larger purchases such as new cars and furniture, household items and kitchen gadgets, clothing and designer handbags. I also spent money on smaller items that, over time, added up to huge budget busters.

These smaller items were everyday purchases that I didn’t even think about when I was buying them. I bought “designer coffees” every day, ate out often, and bought shoes I did not need. I had many coffee cups but always had to have one more because it was so cute and on sale. And I can’t forget the cost of gas for my car as I drove blissfully from mall to mall each weekend.

I also wasted money by not monitoring what was happening with my finances. For example, not paying attention to the due date on my credit card bill which led to a late fee. Or not noticing the increase in my cable bill because I didn’t review the monthly charges on a regular basis. Or continuing with a subscription service that I no longer used, but didn’t cancel because it was too much of an effort to take the needed steps or make a phone call.

Saver Mode vs. Spender Mode

At some point I decided to stop the madness of trickling away my hard earned dollars so I could live debt free. I made changes to the things that seemed small but over time had had a big impact on my budget. I cancelled my cable TV subscription, stopped my home phone service and cut back on my weekend shopping trips.

Slowly over time, I shifted from “spender mode” to “saver mode”. I was already investing a percentage of my income into my retirement account and had an emergency fund in place. I did not have credit card debt and was buying my home. But I knew that I could do even better if I continued to make needed changes to my spending. I knew that my path to wealth was going to come from changing my spending habits, not from changing the amount of my income.

Better Than Average

Another motivator for me was the new goal I had to retire early. The average retirement age in the US is 62. However, 64% of Americans retire between ages of 55 and 65. I wanted to leave the traditional workforce as soon as possible while still preserving my lifestyle and staying out of debt. In order to do that I had to save more money than I was spending.

Over the next ten years, I began to adjust my spending decisions and habits to align with my new goal. I increased my retirement account contributions and my bank savings account (emergency fund). I developed a plan for my daughter’s educational endeavors through a 529 educational saving fund (private high school and debt free college degree). And I continued to increase my savings rate (the percentage of money saved from my net income) year to year and to live a more frugal lifestyle. I did this even though my net income continued to increase each year.

In my final full year of work, contributions to my retirement account exceeded $30k (includes employer match). My account also gained and additional $14k in interest. I was able to achieve my goal of retiring after I attained the minimum-age required to earn a pension from my employer (still well below the average retirement age). Just prior to my retirement, I maxed out my Roth IRA contributions ($6000) and consistently saved more than half of my net income.

Reaping the Benefits

The spending and lifestyle changes that I made in the decade prior to my retirement have continued during retirement. I continue to consistently save more than I spend and to find additional ways to maintain a high savings rate. Although my monthly retirement income is less than half of my income while working, I still travel extensively, support multiple charities and live a fulfilling life. Changing the way I saved vs. how much I spent was definitely the best decision for me and will work for anyone who wants to acquire wealth no matter their income.

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