Article written by: André Bothma | Tax Technical Assistant | MD Accountants & Auditors Inc.
“You must gain control over your money or the lack of it will forever control you”
– Dave Ramsey
It is the 20th day of the month. Payday is still five days away. Too much month, too little money. For the next few days we attempt to cut our spending, or even resort to using our credit card or overdraft facility. This happens so frequently that we relate with our colleagues and friends about the same issue.
So how do we go about solving this problem? Most of us can only think of one solution: Increase earnings. Whilst this is a good goal to work towards, there are a few negatives to it:
Our spending increases as our income increases
If we do not change our spending habits, no matter the increase in our income, our spending will tag along for the ride. This does not save us from the problem we are faced with in the introduction!
Income tax increases
A fat bonus, a significant increase in monthly salary or even doing something on the side are great ways of earning more income, but this also increases our taxable income. We can even slide up the tax scale if we are not careful. The more income we earn, the more tax we have to pay.
We will still want more
No matter the income bracket we hit, we seek a bigger bonus, a better car, a bigger house, more toys. If we do not change our spending habits, we will never get to hit that sweet spot called contentment.
Here is a new solution: Spend less.
A new idea? Certainly not, yet so few of us try it out. Here are some benefits to spending less:
Spending less teaches valuable money lessons
When we spend less, work with a budget and aim to have some left at the end of the month, we have already solved the problem in the introduction. Along with that, we learn how money really works and how to work well with what we have.
Income tax stays the same and saving potential increases
This is a tax loophole that SARS will never be able to close. It also improves our potential to save more money in order earn passive income, which is not taxed as much as active income is taxed.
Spending less teaches self control
When we spend less, we learn to be content with what we have. When the bonus comes in, or when we get a nice promotion, our habit of spending less will take full benefit and now our savings will grow.
The art of spending less takes discipline, self control and teaches you to make your money behave. Christmas is closing in on us, so draw up the family budget and keep your money on a leash… because if you don‘t, it will run away from you and January will become a very, very long month.