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A spending story

Spending warnings


I once heard an interesting story which certainly has a lot of truth to it. I'm hoping that once you've read it you'll think of people who fit the description of the characters.

The spending and earning story:


Once upon a time there was a young girl called Jane. Jane was a young professional working in marketing. Jane chose marketing as her career path as she was really passionate about the luxury holiday packages that her Company were promoting.

Many of Jane's friends went off into the law, banking, consultancy and accountancy professions. These professionals earned far more than Jane, after all Jane was on £28,000 per year whilst many of her friends were earning £50,000 to £70,000.

One such friend of Jane was a banking analyst called Hans. Hans worked for one of the bigInvestment Banks in the City. Hans drove a Porche, rented a big flat in the centre of town, enjoyed nice holidays, fancy restaurants and spent big on impressive nights out. Hans was doing well for himself earning in excess of £80,000 per year with his bonus.

Jane on the other hand could not afford such frivolousness. She was a sensible person. She only bought what she could afford. She lived far outside the city centre and joined the squashed commute into town each day for work. She and her boyfriend rented a very small flat together and they were frantically saving 25% of their net income each month for their first home. They rarely went out except for birthdays and treated themselves to one small package deal holiday per year (which she got a special discount on through her work).

Time passes by....

It's been ten years, Jane's had several promotions and is now earning a decent £50,000 per year. She and her now husband now live in a flat that they own. They were smart and continued to save the 25% per year, increasing that amount every year as incomes rose, such that they're now putting away 40% of their net income per month. They also own an investment property that pays a healthy cash profit each month.

Jane was out for coffee with a friend one weekend and spotted her old friend Hans walking by. She excused herself from her friend and caught up with Hans. He was pleased to see her and they had a good natter and a catch up.

It turns out that Hans had also had several promotions. He told Jane how well he was doing. He was not a Vice President in a Bank and was earning £250,000 per year. Jane was blown away. She didn't even realise Banks paid that much! Hans asked Jane if she was still in marketing. Jane proudly told him that she'd stuck with it and it had worked out well for. She'd had promotions too and whilst not earning anywhere near as much as Hans (even combined with her boyfriend) she had managed to buy two flats. 

"What?!" exclaimed Hans. He couldn't believe that Jane owned a property. He was still renting in the city. "How do you even save? I don't have any savings!". Jane was shocked. How on earth could someone of Hans intelligence and earning power not have any savings and not own any property?

The moral of the spending story


The moral of the story is pretty clear. To build wealth depends less on your earning and more on your spending and your capacity and discipline to save. Likes and wants grow over time as earnings increase so you end up spending more and more trying to always improve your lifestyle. This rarely works out well. The slow, steady and controlled approach works. Control your spending, prioritise saving. Be like Jane and not like Hans.

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