Breaking the Vicious Cycle of Making More but Saving Less Part 1

Breaking the Vicious Cycle of Making More but Saving Less Part 1

If you are reading this then you have hopefully completed the exercise described in the previous article titled, “The Harsh Reality of Making More Money”. If not, then I would highly recommend reading the article and completing the exercise because this article is a follow-up of the previous one and it is imperative that you complete the exercise for the goal of this article (which is also the title) to be achieved.

Upon completion of the previously described exercise, you should have two amounts written down, one for the total amount you spent on necessities since the beginning of the year and the other for how much you spent on all your other expenses. Now to answer the question from the previous article, “how come when we make more money we sometimes end up saving less?”. There are a couple of answers to this question, the first one is inflation (which we will discuss in a later article) the second answer is your financial personality. Now inflation is something out of our individual control so we will not focus on that too much. But our financial personality is something that we can control and adjust to meet our needs.

So, what is a financial personality? Your financial personality is how you like to spend, invest your money, your tendencies, behaviors, and trends of how and where your money is spent. For example, if you tend to spend more than twice as much as what you save then you are a heavy spender, or if you save as much as you spend then you have more of a balanced and safe financial personality. Now how does this tie into our topic of discussion? Our financial personality tends to change around the same time we experience a change in our income. It may be a small subtle change but if you look at your financial records as you should have, then you will notice that your spending habits most likely changed. In our situation, we get a raise in our income, with this knowledge we get a sense of relief and peace of mind that we will have more money at the end of the day to save and be more financially secure.

This feeling can and most of the time is the reason we end up not saving more than we were before. This is because we slowly start to spend a little more every so often with the belief that everything should be fine, a little overspending here and there shouldn’t hurt now that I am making more money. Before we even realize it, these “rare” overspending sprees slowly start to become more frequent to the point where it becomes normal to spend this amount of money. Now over time we finally realize that we are still in the same financial hole that we were in before our raise. Until we do a thorough review of our financial records like we did in this situation then you won’t know where that extra money is spent. Which is why it is very crucial for one to do an analysis of their financial transactions at least twice a year, preferably in the middle of the year and at the end of the year. This helps you plan and set goals for the changes you need to make going forward.

Upon coming to the conclusion of where this extra money was spent we are halfway there in becoming more financially aware and secure. The other part which is the hardest is how to stop spending this extra income that we now get because of our raise. This is the hard part because once you are in the habit of spending more money it begins to feel normal and, trying to change our financial personality at this point feels impossible because we believe that we won’t be able to survive if we spend any less than we currently are. In the second part of this article, we discuss the different ways and the necessary steps to take in order get out of the hole we are in and be in control of our money.

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