Here is an interesting thing to ponder. Let’s look at two families. Family One made $25,000 this year, but they know they are going to make $35,000 next year. Then we have Family Two that made $100,000 this year, but they know they are going to make $60,000 next year. Which family do you think is happier?
Most people would say Family One is probably happier. Yet next year they will still make $25,000 a year less than Family Two. How is this possible? I think this may be one of the great truths about money and wealth. It’s more important which way you are headed than how much you have. If your income is increasing every year, you know you’re going to be able to spend more each year, life looks good. But if you have to radically reduce your expenses, even from a high level, that’s tough to swallow.
This is a fundamental problem that I think many Americans have. By running up their credit cards and taking on mountains of debt, they virtually guarantee they will have less next year. But if they spent 85% of what they made and invested the rest, they’d be further ahead each year. I think everyone should keep this in mind when they are thinking about buying a new car when the old one runs fine, or when they are going to have to borrow $5,000 on their credit card to take that cruise.