The world is full of people making a good living, but living poor lives

When I first started out in personal finance, I didn’t understand why everyone kept emphasizing to cut back on daily expenses as the #1 rule to building wealth.

I mean, isn’t having a large salary and making pots of money being wealthy?

Look at all of these people with high incomes — they’re all considered rich!

There must be something to this salary thing.

Oh young grasshopper!

It wasn’t until I really started tracking my expenses that I realized there was a second part to “cut back on daily expenses”, and it was:

Cut back on daily expenses, because wealth doesn’t exist without savings.

Now we’re getting somewhere!

Wealth doesn’t exist without savings

Jane makes $45,000 after taxes, and saves $20,000 of it, living on a very frugal lifestyle.

Every year, she banks $20,000.

John makes $130,000 after taxes, and saves $10,000 of it.

Every year, he banks $10,000.

There. Example finished.

Even on an income 2.8 times higher than Jane’s, John saves less, and therefore flashier than Jane but is much less wealthy.

This becomes even more significant when you take compounding interest into consideration.

Spending should be in line with your lifestyle, not income

This sounds a bit like “Umm.. what are you smokin’, because most people spend based on their lifestyle anyway, not their income..”

From my experience, not so much.

Spending in line with your income

If you make $30,000, you spend it, but the majority goes to basic expenses and such.

If you make double that, you have it in your head that you make $60,000, and therefore, spend accordingly to what you know to be your income.

At higher and higher incomes, your spending for basic expenses increases by small increments, and you start to spend a higher percentage towards more “frivolous” categories to have what you feel is a better quality of life, such as on eating out, shopping, taking flashier vacations, and so on.

We spend what we know we make.

Spending in line with your lifestyle

It took me a while to learn the distinction between income & lifestyle, because the two do NOT have to mean one and the same.

You could make a lot of money or a little bit of money, but if your lifestyle stays the same, your expenses will follow suit.

For us, if we make extra income in a year? Fabulous. We bank it, and use some of it to go traveling when the two of us are free to do so.

If we make $0 income in a year? No problem. We have our banked savings and we don’t sweat it.

We are still living the same lifestyle, no matter our income.

The best example of spending according to income

…is my brother (Mr. Jones).

When he first started out, he was pulling in $35,000 a year. He lived with two roommates, ate beans out of a can, and cleared his $15,000 student loans within a year or two.

As his career progressed, his income increased to $100,000 a year, and so did his lifestyle.

He started driving a sports car, going out to eat nightly, drinking on weekends, flying away on impromptu vacations — the whole lot.

Now that he and his wife make almost half a million a year, it has gotten out of control.

  • Upgrading to a $750,000 home from their starter $250,000 home
  • Two new cars because the old ones looked old
  • New furniture for this new home
  • A huge pool to use 2-3 months a year because we live in Siberia Canada.
  • For the kids: toys, toys toys!!!

Sure, they save about 4% or $20,000 a year.

But whatever he saves, they end up spending, on the premise that they can always make it all back, and they’d rather have the fun now, rather than later.

Note: To be fair, my brother is the type of workaholic who only needs an office, a bed, his telephone & his computer. Other than that, he could work/live anywhere and under any conditions.

He just simply doesn’t care about his surroundings — it seems to be more my sister-in-law who is into the image of “hearth & home”, and who pressures him into loosening up the purse strings so they can “live a little”, but then complains when he works too much to make all this money to pay for their fabulous lifestyle.

Not so fabulous, I say.

To put it into perspective, they need to make $150,000 a year (together) at a minimum to pay for the mortgage and utilities.

That’s it. My entire sister-in-law’s income goes towards just paying for their bloated McMansion.

Food, gas, cars, clothes, vacations, furniture, medicine, books, tuition, toys and whatever else they want? They need more than $150,000 to cover that, not to mention savings & retirement!!

The good news is that such excessive spending in my family, makes me feel the urge to really tighten the reins on my own spending.

What you spend is a greater contribution to your financial independence than what you make

You shouldn’t base your lifestyle on how much you make, because as illustrated above, you’re just spending for the sake of spending.

Basing your lifestyle on how much you spend, is much more important to ensuring financial independence.

In the example above, if you make a boatload of money like John at $150,000, but only save $10,000 of it after taxes, you are a slave to your job, because your lifestyle demands it.

You feel trapped, as if you cannot quit your job because you need the money.

I definitely felt like that at one point.

I had so much debt, I felt trapped in my job, unhappy but making a good salary to put chunks of money to clear it each month.

It seemed like it would never end.

Then I realized: I am treating myself for being employed & throwing a pity party for being in debt!!!

I had created my own financial prison and I had to engineer a jail break, and once I did:

  • I was able to live on much less than I thought possible (never in a million years…)
  • .. and I felt comfortable with spending less than 50% of what I spent before! (*gasp*)
  • I saved more money & finally saw the light at the end of the debt tunnel
  • My lifestyle became my own again, rather than a monster I couldn’t control

This was of course, all possible because I started tracking my expenses & creating a budget.

Build up an immunity to your salary by cutting back on expenses

Think of cutting back in your expenses as inoculating yourself & your life against a potential income-destroying disease.

By gradually cutting back in your spending, you are preparing yourself for the worst situation possible (which in many cases does happen), and you won’t feel the pinch when push comes to shove because the less money you spend, the less you worry about having to keep your job just to keep up with your lifestyle.

I know more than a few people who are trapped in jobs they hate, but are helpless to leave because the only thing they can tell me is :

I NEED $80,000 a year to live. I just need it. It’s my bare minimum.

When pushed about why the “need” that money, the truth comes out: they bought a house they couldn’t afford, they have car payments, they need to go out every weekend…

Bla bla bla.

They just think they need that money, but it sounds more to me like financial slavery than freedom.

How can anyone enjoy that house, that car & those fun activities if you dread waking up on Monday morning to start another work week, in a job you absolutely hate?

If your expenses are as low as you can go, it won’t matter if you have to (or want to?) take a job with a lower salary.

But if you make $150,000 and then drop to making $40,000, while living an $80,000 lifestyle, you are going to feel that crash & come out bruised & bleeding, crying about your bad lifestyle choices & lack of knowledge about how to even begin to lower your expenses.


  • Wealth doesn’t exist without saving.
  • Cutting back on expenses helps you save that money you’re making.
  • Track your expenses to find out where you need to cut back in your budget.
  • Your spending should be in relation to your true lifestyle, not your income.
  • Spend less money & you will need less money, but be grateful for anything above & beyond.
  • Prepare yourself for a possible drop in income at any time, by learning to trim expenses.
  • Save. Save. Save. And never feel like a slave to your job again.

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.