“I’m really distressed about my financial situation. Although I’m earning twice as much as I did a year ago, now every month I’m broke right after payday, and I’m in serious debt. What am I doing wrong?”

Most people desire to make more money so that they can improve their finances. It seems practical to think that if we get additional income, our money troubles should disappear. So why is it that so many of us retain less money when we earn more?

It’s easy to point to the spiralling cost of living to explain this phenomenon. But should we only put the blame on the tough economy? Can our own spending habits contribute to this earn-more-have-less problem?

The challenge lies in the fact that many of us have a propensity to spend that far outweighs our ability to earn. In other words, our desire for things will always be greater than the money we have to buy them. Let’s look at some of our thoughts and attitudes that cause us to spend more than we should:

“I Earn Enough, I Can Afford It”

We have a mistaken notion that a big pay cheque gives us a licence to splurge. As financial writer Charles A Jaffe explains, “It’s not your salary that makes you rich, it’s your spending habits.” A person who earns $30,000JMD monthly and spends only $25,000JMD, is better off than someone who gets $300,000JMD, but has expenses of $320,000JMD per month.

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“I Work Really Hard And I Deserve It”

Typically, in order to earn more money, we have to spend a whole lot more time at work. To compensate for our increased efforts, we feel justified in rewarding ourselves with more of the finer things of life.

“I Get Great Perks”

With our new-found status, we may find that a lifestyle that was out of bounds before is now available to us. Invitations to join elite members’ clubs, platinum cards with large credit limits, tickets to the most stylish events; all of these bonuses come with high prices.

“I Want It Now!”

We live in a world of immediate gratification, where advertisements scream, ‘Why wait? You can get it now!‘ Gone are the days when we would save up towards our purchases; today’s easy credit terms allow for instant consumption.

“I Have To Keep Up With My Friends”

As we move up the earnings ladder, we feel pressured to copy what our ‘successful’ associates do. Our 10-year-old Toyota is no longer good enough to cruise with our BMW-driving colleagues. The Made-in-China shoes can’t stride beside our friends’ Jimmy Choos.

“I Can Always Make More Money”

Some of us think that the ladder of success has only one direction – up. So we make spending plans based on expected future income that might not be sustainable or even achievable. Often we will overspend with credit cards, thinking that we will eventually earn enough to pay it back.

“I Am An Important Person Now”

As we say in Jamaica, ‘Tings a gwaan fi me now.’ How better to let the world know that we’ve made it, than to buy the latest, biggest and most expensive things? We always have to keep buying more to maintain this image of achievement.

“I Can’t Say No”

Now that we’re earning more, how could we possibly deny our family and friends the things we couldn’t give them before? Disney World vacations, expensive restaurants, loans to our friends that they don’t need to repay – isn’t it great when our money can make everybody happy?

Initially, our increased wealth and spending patterns may feel like the answer to our financial dreams, but eventually we will find ourselves struggling in a never-ending nightmare of debt. This is because we can never maintain a lifestyle in which we spend more than we earn, no matter the size of our pay cheques.
So what can be done to change these destructive spending patterns?

The first step is to obtain a clear picture of your financial situation. Download a personal budget under the financial tools section at www.financiallysmartonline.com, and write down all your expenses. It will show you clearly if your income is enough to match your spending habits.

Next, consider all the things you are currently spending money on, and decide if maintaining a high-consumption lifestyle is really worth the resulting debt payments and lack of savings. What’s the point of earning more just to make others richer? Be practical, yet ruthless, in trimming away the excess spending from your budget.

Finally, change your focus for your money. Decide that you will delay gratification for now, and channel more of your earnings into savings and investments. This will help you to create assets that will earn for you in the future, thereby providing you with true financial freedom.

Copyright © 2009 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, July 16, 2009

Cherryl is a financial consultant and coach, founder of Financially S.M.A.R.T. Services. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl