That hand-to-mouth unease

If you’ve come across any of the television or movie versions of David Copperfield, or read the book in school, you may remember Charles Dickens’ famous character Wilkins Micawber. This father figure to young David (modelled after Dickens’ own father) doles out much advice, including a money principle that went something like this:

Annual income:           £20.00

Annual expenditure:     £19.98

Result:                      Happiness

Annual income:            £20.00

Annual expenditure:      £20.02

Result:                       Misery

In short, spend less than you bring in, and you’ll be happy. Spend more, and you’ll be miserable.

Many people boil money management success down to that single piece of advice: ‘Spend less than you earn’. There are a number of similar catchphrases out there, like ‘Live within your means’ or the more recent ‘Act your wage’.

Now I always figured that ‘Spend less than you earn’ was good advice that would keep us out of dumb debt, and that avoiding debt was the whole point. Now I recognise it’s actually much more: it’s also a key to getting ahead financially. Basically, you need to cut yourself some slack.

Save from every pay

Now unfortunately, constantly drilling a phrase like ‘spend less than you earn’ into our heads gets us focusing more on reducing expenses and less about getting ahead financially. Thriftiness has its place, but if you’re cutting back just for things to stay the same, that won’t make enough difference in the long run and you won’t grow your finances.

Others have tried to flip the phrase so that it becomes ‘Earn more than you spend’, or ‘Expand your means’, so that we focus on earning more instead of just cutting back. Which is a good point, since increasing your income can obviously keep you from misery’s door.

Yet we often tend to overestimate our future earnings and our ability to pay for things. I have to admit that in the past, thinking I could just bring in more money got me further into debt, especially when I was working on sales commission. I always seemed to overestimate what costs I could cover in the short term – many of us do – and when the bills rolled in I didn’t have the funds and had to rely on credit to get through.

Then there is lifestyle inflation, when our expenses mysteriously (or not so mysteriously) slowly expand in line with our pay rises. That also keeps us from growing financially. Earning more is only part of a solution.

So let me offer this simple rule of thumb from the team here at Sorted:

Save from every pay.

That’s it. Save from every pay. Not ‘spend less’ or ‘earn more’ (although those things are fine), but rather focusing on what we’re doing right now – this pay period. Recent studies show that if we think of how cyclical things are and zero-in on what we’re doing right now, we can get into good savings habits. If you save now, you’ll likely save during the next cycle, too.

Save from every pay. Are you this week? Even if it’s only a small sum – I had one fortnight when I could only put $5 into a new fund I had started – don’t miss a payday.

Hand-to-mouth unease

Speaking of paydays, you’d be surprised how many of us are living from one to the other. I had a look at some overseas stats the other day – two-thirds of those who barely get by are not considered ‘poor’.

There’s something remarkably equitable about this – it doesn’t matter how much you earn, or whether you’re affluent or in poverty, you can still be living hand to mouth. You may earn six figures, but if your expenses are too high you may be barely treading water.

Once again this proves that sorting out your money is not so much about how much you earn; it all comes down to how much you keep.

Thankfully, these days we no longer have the debtors’ prisons that terrorised people in Dickens’ day when they couldn’t pay their debts. When Mr Micawber spoke of ‘misery’, it was far more literal than most of us face today.

Yet the ‘happiness’ he spoke of still holds. Save from every pay!