Build Wealth by Taking Care of Yourself First

This article is part of our 12 Keys to Lasting Wealth Series – (Key 4: Make Simple Changes to Reach Financial Freedom ).

In 1955 British historian Cyril Parkinson coined a simple phrase that profoundly sheds light on human behavior.

“Work always expands to fill the time available for its completion”

As a British civil service worker, Parkinson watched as fellow workers continually used every second of time allotted to complete any task.

Anyone of us who’ve struggled with a high school term paper is familiar with this. Regardless of the amount of time given most of us would work frantically into the night, finishing only hours before the paper was due.

Perhaps you’re familiar with the principle on your job as you and colleagues rush to complete an important project right before the deadline.

“Work always expands to fill the time available for its completion”

From this statement has arisen corollaries, or related statements describing similar human behavior:

“Stuff always expands to fill the physical space available”

Your small apartment seems cramped and cluttered, so you move to a bigger place only to find that months or years later that space too has become cluttered from all the stuff you’ve accumulated.

“Data always expands to fill the available storage space”

You upgrade to a new computer assured that a 250GB hard drive has more than enough space. A year later your hard drive is bulging at the seems with all the music, programs, pictures, and other things you’ve downloaded off the internet.

Yet, here is perhaps the most financially devastating corollary,

“Expenses always expand to fill available income”

It seems no matter how much money we bring home, we’ll find a way to spend every last cent. How many times have you told yourself that you’re going to save money, only to find yourself going out for dinner here, buying that sharp pair of shoes there, or purchasing an expensive new item like a flat screen television?

It seems like there’s always more month than money.

If you’re like me it’s not hard finding a use for any extra money hanging around. It burns a hole in my pocket waiting to be spent.

We often think we’ll start saving more after we start earning more money. But invariably, when we get the big pay raise, lifestyle inflation catches up to us. We need a bigger house, a better car, or nicer furniture to complement our new pay scale.

“Our expenses always expand to fill our available income”

But there’s a surprisingly simple solution to this problem. As my mama would say, “You can’t spend what you can’t see.”

Never allow yourself the opportunity to see 10% to 15% of your income. Stash it away before you can even get your hands on it.

Automatically have a portion of your paycheck invested in your company’s 401K or 403B plan. Alternatively, have a portion of your paycheck directly deposited into a special savings account.

This method of paying yourself first has been promoted by financial experts for years, most recently by David Bach in his book The Automatic Millionaire.

It helps you fight the Parkinson corollary by forcing you to make due with 85% to 90% of your income, while the other 10% to 15% is invested or placed into savings.

Yes, you’ll have less money to eat out, buy the latest fashions, or go to the movies, but you’ll build wealth with the money you’ve invested or placed into a savings account.

Having done this myself, I can tell you that after a couple of months, you stop missing the extra money you’re stashing away. Surprising but true. You adapt. Your expenses fill the rest of the 85% or 90% of your salary.

What if you can’t afford to put away 10%? Start off small. Stash away 2%, then gradually increase the amount you put way each month.

This one simple lifestyle change – putting away 10% to 15% of your income before you even see it – will do more to put you on the road to financial freedom than anything else you do.

QUESTION: So what about you? Do you fall victim to the “expenses always expand to fill your income” curse, or are you able to save money on a regular basis? If so, how do you do it? Share your thoughts by leaving a comment below.

Let’s move on to the next key for achieving lasing wealth.

Tagged as: Frugality, Investing