Saving, Managing Debt, and Budgeting

Creating Wealth

Why do people spend down their savings?

People are comfortable with predictability, and have a hard time getting used to new situations. If they grew up in an environment where there was never enough, and suddenly have a lot, no matter how painful, people will spend their money down to the level with which they are most familiar and comfortable. If you never had more than $500 in your checking account, and suddenly receive a $1,000 bonus, people without financial goals will find a way to spend that $1,000 down to $500, because they are more familiar with having no more than $500 in their checking account. A person committed to attaining a financial goal will get the money, put it away safely, pretend it doesn’t exist, and maintain his customary spending behavior. A goal-oriented person will change the way he views his checking account, and decide that having $1,500 is his new minimum balance. While the spender is spending the excess, the saver has changed his view of what should be in his checking account to a minimum of $10,000, and is setting aside this extra income to reach that new goal.



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