The Equation

Talk to most people and they'll tell you that their financial woes could all be solved with one simple thing. They need money. More money. A whole lot more money.

This thinking has actually spawned an entire industry that's sweeping the world: the lottery. People play the lottery because they think a windfall is the answer.

More realistic (but equally wrong) people will assure me that it's all in the income. I've talked to families who earn, say $60,000 a year in combined income. They moan and groan. They could make it, really make it, if they could just earn $70,000 a year. Even $68,500 would do it. But $70,000 would be perfect. Easy street.

But then I talk to another family, in the same neighborhood, same demographics, same family size, everything is equivalent. The thing is, this family already is earning $70,000. Far from being economically advantaged, they perceive themselves in the same dire straits as the first family, wailing that they are financially doomed unless ... they could earn just $80,000 a year.

Don't laugh. The guy who earns $200,000 is whining that he isn't making $250,000.

What all of these poor pitiful people have in common is a delusion. It's a delusion that runs throughout the whole country. But popularity doesn't make a delusion into reality.

The fact is that your financial report card has two sides. Part of it is what you make. Don't misunderstand me, income is a big part of your overall financial picture and more is better.

But there's another side to the equation that nobody talks about. It's how much you spend.

Most people are dumbfounded that their spending habits even matter or contribute in any way, shape or form to their overall financial well-being. Most people feel helpess in terms of managing spending habits. It's almost as if spending is an uncontrollable variable in the equation and to prosper we need to increase the income.

It's the other way around.

You have tremendous control over what you spend. You have a slight degree of control over what you earn--some of us more than others. But you really don't have that much influence over what salary your company pays you. True, you can change jobs, but your income is going to be limited by the jobs available and your education and skills. Some of us just aren't going to ever earn a million a year, and that's all there is to it.

But all of us can save money. When you start controlling that part--the part you can control-- you increase your net worth, you improve your finances.

If you're working, I bet there are people right now in this country earning what you're earning and in comparable situations (geography, family size, obligations) who are quite comfortable and there are others who are massively strapped for cash. The difference isn't the income. It's the spending habits.

You've got to spend less.