Spend less, earn more & invest


“Spend less that you earn�? must qualify as the most popular 5 personal finance words. People like simple rules of thumb and this is certainly one of the most effective if acted upon. But, achieving a good financial life where you can afford school fees and other educational costs requires more than rules of thumb.

As a certified financial planner, I find that in my interactions with clients I have to constantly remind them that there are only 3 ways to building wealth:

  1. Spend less;
  2. Earn more; and
  3. Invest

Although both spending less and earning more have their place, depending on life stage and current financial situation, one might require more focus than the other. A married couple with one partner running a small business and the other employed who focused on cutting costs to allow the other partner to be self-employed is likely to have reached the limiting of cutting back and should focus on earning more. Here is an example from one of my clients.

To help the parents achieve their goal of paying for their child’s tertiary education, I helped the couple develop an expense reduction plan. So they cut back on:

  • Entertainment and eating out;
  • Travelling and holidays;
  • Putting additional money into the home loan account;
  • Mobile phone data; and
  • DSTV subscription

Bottom line, tighten your belt!

After implementing the plan with the zeal of a convert, the question that they faced was; now what? The lesson here is not that people shouldn’t spend less. I would be the last person to give that advice since quick improvements in financial health usually come from spending less. The lesson is what to do in addition to spending less. Experience has taught me that the following 2 activities must accompany spending less:

  • Finding ways to earn more, including investing in yourself; and
  • Learning how to invest.

I continue to be amazed at the number of people I come across who are good at saving but don’t know much about investing. Understanding the difference between saving and investing is one of the key pillars to wealth creation.

Wealth building is so simple it can be explained in this sentence “spend less than you earn and invest the difference wisely.�?

You might want to read about ways to make education more affordable.