There are many Filipinos who spend the majority of their lives working hard, either in the country or abroad. Yet, at the end of their lives, when they could no longer work, they sometimes end in near-poverty and they have nothing to show for all the years of hard toil.
I have been reading recently about what financial experts call the “lifestyle creep”. It is when one increases his or her standard of living to match an increase in income. It manifests as the decision to buy an upscale home in an expensive subdivision after receiving a huge income increase, or it could be spending millions on a fancy car after earning a windfall. Along with that expensive home comes a huge real-estate tax, expensive utility bills, bigger maintenance costs, et cetera.
At the end of one’s life, when a person loses his job and finishes off his savings, he might be forced to sell these properties for cheap to be able to pay for an expensive medical procedure, or to simply pay for regular expenses. What is left at the end of a long life spent working could be some money from social security and not much else. Then one might wonder whether all those meals at expensive restaurants and the holidays in exotic foreign shores were all worth it.
Financial experts strongly advise against living from paycheck to paycheck, which means spending all of what one makes. When the salary is small, the expenses are small; but as soon as it increases, the expenses also increase—this is a huge mistake.
The billionaire Warren Buffet lives in the same modest house that he bought many years ago for a little more than $30,000. In the same way, financial experts believe that keeping the same house and car even if one’s income increases is a very wise financial move. In a nutshell, live below your means so you can save more money that you can invest.
A study revealed that 83 percent of self-made millionaires bought modest homes and lived in them for the rest of their lives. They also bought good used cars, ate home-cooked meals, and bought reasonably priced clothing. They are experts at delaying self-gratification, which means that they won’t give in to their wants so they can have something for the future. They all lived lifestyles that allowed them to build their wealth.
When you spend your money, it’s gone. So think twice before paying for anything. Ask yourself if you really need it. And if the answer is no, be ready to delay the acquisition of it. If you are able to turn this self-examination and delayed self-gratification into a habit, then you are a step closer to financial independence.
Let us take it from Buffet: Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.