“Now I will tell thee an unusual truth about men and sons of men. It is this: That what each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary.”
-The Richest Man in Babylon
Last week, we looked at the first of the seven cures for a lean trading account, which required us to set aside one tenth of our income. The second of the seven cures for a lean trading account is to limit our expenses.
Arkad explains that regardless of your income or your obligations, the things that you consider to be “necessary expenses” will always expand to take up as much of your income as you permit.People who allow their “necessary expenses” to consume more than 100% of their income generally end up calling Dave Ramsey or Suze Orman for help once they dig a big enough hole.
If you are bothering to read a trading blog, chances are pretty good that you have your finances in order. Even if you aren’t happy with where you are at, I’m guessing that you are still well ahead of most of your peers. If you aren’t, let’s get your ass moving in that direction.
Regardless of where you are, could you be doing a better job of budgeting and saving? The answer is yes for most of us. Are you aware of what you are spending your income on?
Two of my biggest weaknesses are Amazon and iTunes. Both make it ridiculously easy for me to order things right from my phone from anywhere in the world. Over the course of a month, I never think twice about ordering a book here and an album there. Then, at the end of the month, it is always shocking to see what those small items add up to.
Another weakness of mine is subscription services. Sure, I’m and definitely getting a great value from the $8.99 I spent on Netflix each month, but do I also need to be spending $24.99 on MLB.TV and another $9.99 on the WWE Network? I don’t watch all that much TV to begin with!
I also subscribe to eIBD, which is like 25 or 30 bucks a month. Then there is XM Radio for both cars, and we haven’t even gotten to cable and internet yet. That’s quite a bit of money on entertainment.
After breaking down your expenses, you might come to the conclusion that the Amazon books and Itunes albums provide valuable education and creative inspiration. You might also find the entertainment subscriptions to be valuable.
Hard to argue with that. The important thing is that you are aware of where your income is going and that these expenses are not preventing you from saving the first tenth of your income.