Cost Management

No matter how much income a household has, there just never seems to be enough.  This is as true of millionaires as it is of those struggling paycheck-to-paycheck on minimum wage.  I don’t mean to equate all expense management issues: there is a far bigger difference between determining whether to pay the rent or buy groceries versus deciding between vacation in Bali or leasing a Porsche.  The first situation is tragic, the second is absurd.  In both cases, though, the common thread is expenses matching incomes.

There is a tendency for families to match an income increase with a dollar-for-dollar increase in expenses.  Or worse.  Sometimes new items are added to the cost base that actually outstrip the income gains.  Perhaps one of the best money life hacks is a measured approach to lifestyle changes as income improves. For example, a $100 per week post-tax income improvement being met with a $40 per week addition to expenses, and a $60 per week addition to savings and investment.  Holding lifestyle relatively flat while income improves is a terrific way to build wealth.

–Tim Shields, UBS


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