Live on Less. Have More.

My friend Morgan Housel recently asked me to contribute to a piece he did, asking for my best 5-word financial advice. My response was the title above.

But I want to expand on this a bit, since it’s a little vague. Maybe by design.

Simply understood, if you can spend less money, there’s more to save. And I’ve pointed out that the gap between how much you THINK you have and how much money you ACTUALLY have is the most valuable thought you’ll ever have. People who successfully reach financial independence practically all get there (short of the lottery or a lottery-like business exit) by this same route. They don’t assume that their income can buy them something it can’t. In fact, they assume it will only afford them much, much less. And with that, they build wealth.

I could tell you story after story of clients who take this to extremes, punishing themselves with guilt over an indulgence that is well within their budget. Or the 90 year old widow who can’t bring herself to buy new hearing aids despite the fact that it would cost 0.1% of her liquid net worth. But assuming that your income buys you less, instead of assuming it entitles you to much, results in positive net cash flow. And positive net cash flow builds wealth.

There’s more here, however. Having more doesn’t just mean building liquid financial wealth. Having more means finding yourself content more easily. Living on less might force you to look for actual happiness instead of pursuing ownership of more shiny physical objects. It might mean spending some time reflecting on your life instead of checking Amazon Gold Box deals for something that might bring you 30 more seconds of fleeting “happiness.” It probably means getting out of the comparison game and knowing that regardless of how much money you make, somebody has it better. Even LeBron rubs elbows with guys with 10x his net worth. If he’s expecting happiness won’t come until he owns the jet he’s flying on, he’ll be pretty bummed out when, at that level, somebody else’s jet has a nicer kitchen.

Living on less might mean letting go of the aggressive pursuit of more income in hopes it brings more happiness. The jury is still out on that topic, so we won’t go there too deeply. But I can tell you that thinking “if I can just get to $X in monthly/annual income, then I’ll be happy” is absolutely, 100% wrong. It might come with less financial stress, yes. I’ve been through that and it certainly is less stressful to not worry about how you’ll pay your bills. But that’s not the same as expecting more money to make you finally happy. What you’re more likely to find is that when you finally get to $X in monthly income, it won’t seem like all that much. So you’ll move the goalposts, where $1.5X will be what does it. Or $2X. And then, for the rest of your life, you can keep moving the goalposts. You’ll have more, but not of what you were really looking for.

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