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When you are poor, managing your expenses is fairly easy. If you don't have money, it's hard to justify buying anything non-essential. Lack of money breeds a mentality of cheap living out of necessity. But as your household income grows, your ability to spend on non-essentials grows with it. How many people have seen their income double over five to ten years but have nothing to show for it?
The problem is that as income increases, our mindset changes. We begin to think we are wealthier and our tastes and expenses undermine our income progress. Over years, we develop a sense of entitlement from thousands of hours of hard work. After all, we earned it, didn't we?
But it's that sense of entitlement that keeps us from becoming wealthy. If you want to get rich, you have to mentally act as if you are poor, even if you are a long way from that. Here's five assumptions you can make that will help you build wealth by curtailing your expenditures.
Assume That It's Your Last Dollar:
When money is scarce, you have a greater appreciation for each dollar. Decisions get made about whether something is really needed or just a nice to have. As your income grows the assumption becomes that dollars will always flow and in ever increasing numbers. But the poor don't have this luxury. Sometimes it really is their last dollar so it becomes very scarce. Assume the same thing and you'll be far less likely to grab that Gucci handbag.
Assume You Will Lose Your Job:
Job security for lower income families is very low. Most service sector employees in industries such as retail or hospitality assume they can easily lose their job. Professionals and other upper income individuals assume that they will be gainfully employed. If not with their current employer, with a suitable replacement that will take them less than 60 days to land. The recent Recession has dampened that enthusiasm but many middle and upper middle class Americans believe that they have a value that is hard to replace. Don't assume that you are indespensible, assume that you job could be lost in the next month.
Assume Your Family Can't Bail You Out:
Many people assume that their family will always be there for them. We hope they will be, but planning for that may end up creating a problem. How many people assumed that family would help them if they fell behind on their mortgage only to find out how strapped everyone really was. Make the assumption that you are on your own and your spending plans will be offset by the potential need to support yourself.
Assume Your Income Will Be the Same:
Professionals as a group assume that every year they will be the recipient of a five to fifteen percent raise. Lower income individuals almost never have that outlook, they assume they will make about what they are making plus perhaps a small increase. While it is positive for career motivation to assume large increases, it creates a world where you current purchases can be paid for by future increases in income. Never assume that you'll be able to cover your expenses with future income increases.
Assume Something Bad Will Happen:
We all hope things will get better, but when we start planning for it, we get ourselves into trouble. The poor are so close to the edge that they focus more on the things that can go wrong. Middle and upper income families don't pay attention because they feel that they can always manage the downside. But that's not always the case. Someone gets very sick and $30,000 of medical bills pile up. Assume that event could happen to you or your loved ones and prepare for it.
Once you make these assumptions in your plan, you'll find your spending will be far lower than it is today. It will almost always force you to start saving first before you entertain discretionary spending.
Sound too negative? Well the old expression, "Hope for the best, but plan for the worst" should be your guide. Your not expecting these things to happen, but you sure will be ready for them if they do.
Related Articles:
12 Things We Used to Do Ourselves That We Pay for Today
The Impulse is Your Demise
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