Healthy Financial Habits

The Parkinson’s law is important to understand and practice when it comes to accumulating wealth.  I will start off with a short story of a typical college graduate then later explain what exactly the Parkinson’s law is and how it applies to wealth accumulation.

After completing four years of college and living on minimum wage supplemented by various credit cards, you finally land your first full time job. You are excited to know that you will not have to eat another bowl of Ramen noodles or order off of the dollar menu at McDonald’s.

You are now earning more than twice what you were earning prior to graduating. You move out of that bug infested apartment into a nicer apartment on the other side of town. You now buy actual food at the grocery store instead of vitamin fortified cardboard and purchase bottled Budweiser opposed to canned Natural Light.

With money still left over each month you stop by your local Ford dealership and purchase a brand new Ford Fusion. You drive off the lot feeling good about your purchase.

Soon enough you are spending everything that you earn each month. You are no better off financially from one month to the next.

Four years go by and the excitement of owning a new car has long passed. Around this time you are offered a promotion that comes with a $20K a year raise. You are excited about your new raise and are already thinking of new ways to spend your extra money.

The first thing that you do is stop by the grocery store and pick up a 12 pack of bottled imported beer to celebrate. As you are checking out you vow never again drink that cheap domestic horse piss that you have been drinking in the past and only buy premium imported beer.

You have been noticing advertisements offering new luxury town homes not far from your job. You stop by one Saturday afternoon and without much thought purchased one.

After moving in you noticed that all of your neighbors are driving new imported vehicles and you are driving one of the few American cars in your community. Feeling inadequate, you stop by your local BMW dealership on your way home from work one day and drive off in a brand new BMW M3.

Your choice of food went from wholesome home cooked meals to take out food four days a week along with frequent restaurant visits. After all, with your new promotion and pay raise you can afford it.

Once again you find that every dollar that you earn is consumed. You can’t seem to save any money but that’s okay because you are still young and don’t have to worry about it.

Well yet another four years go by. With another promotion comes another raise- a big one this time. You receive a huge promotion with a $35k a year pay raise.

Once again you purchase a newer more expensive vehicle, larger more expensive home, and eat more expensive exotic foods. After all, you now make over six figures and can afford it right?

Several years go by and you are now in your ladder 30’s. All of this time you have been making six figures and still have not been able to save any money. In fact you now owe $30k to creditors.

Realizing one day that you are getting old and will soon need to save money  for retirement you asked yourself “Why is it that I have been making over $100k a year and can’t seem to save any money?”

Well, the answer to the question can be explained by the Parkinson’s Law:

The Parkinson’s Law can be defined as the notion that work expands to fill the time available for its completion. In terms of money and personal finance it can be defined as the supply of a resource (your income) increases the demand (your spending).

This is one of the biggest secrets when it comes to wealth accumulation. The majority of people, especially Americans, simply do not understand this concept and live their entire life trying to keep up with the Joness.

I’m not saying that you should live in the roach motel and continue to eat Ramen noodles for the rest of your life. What I am saying is that in order to accumulate wealth you need to find a comfortable lifestyle that is well below your means and stick with it.

Don’t pay attention to what your neighbors are driving or what your peers are doing. Chances are that they can not afford the lifestyle that they are living.