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Home » Personal Motivation

Why “Spend Less than you Earn” is Flawed Financial Advice

Last updated by on January 12, 2014

One of the most over-used, over-rated, over-hyped financial cliches out there is “spend less than you earn” or similarly spend less than you make”.

We’ve all heard it. Many of us have lived by it. But is it good personal finance advice?

This phrase is often used in the context that personal finance is simple, one only needs to make sure that they are indeed spending less than what they make in income. That is the secret to personal finance. Why over-complicate things?!

Taken Literally…

The unspoken advice with this philosophy is that you can spend away, and as long as you are not spending more than you are making and adding bad debt, all is well.

In my experience, this advice is always seemingly comes from someone who:

  1. has an addiction to spending and wants to justify their purchasing behaviors.
  2. doesn’t want to spend the time to educate his or herself on a complex topic.
  3. wants to appear to be an expert on something they are truly not.

Sadly, I’ve seen a number of personal finance blogger peers cite this advice as one of the top pillars or tenants of personal finance.

Yes, of course, you need to spend less than you make. That’s a given. If you don’t, you’re losing money or increasing debt. In other words, you’re screwed. Your lifestyle is unsustainable. If you’re seriously in debt and your cash outflows on a monthly basis exceed what is coming in, then spending less than you make might be a good starting point for you… but…

For everyone else, this advice, taken to its extreme, could result in said person:

  • spend less than you earnGoing into serious debt if income stops coming in
  • Not be able to build an emergency savings
  • Not ever reaching financial independence
  • Never being able to retire
  • Not being able to save up for an occasional vacation
  • Not really working towards ANY future goals that are reliant on finances

The reality is that if you take this advice literally, you could simply be spinning your wheels and leaving yourself open for financial disaster.

How many people in your life, perhaps yourself at a current or previous state, have lived by this personal finance commandment?

The American Dream

Imagine this:

The picture-perfect suburban family with two kids, two nice cars, a 3,000 square foot home, and no debt other than their mortgage, car payments, and student loans (that’s all good debt, right?). They spend less than what’s coming in… barely, but bills are being paid, so all is good in the world. Then all of a sudden, BAM!! The economy slows down, the breadwinner gets laid off, they can’t keep up with the home payments because they didn’t have emergency savings, they default on and lose the house, they lose the cars, their credit history is slaughtered, they build serious credit card debt, and they’re moving in with the parents.

How many times have we heard this or some similar variation of this story? It happened to millions of good-intentioned folks who were spending less than they earned during the Great Recession.

I have zero doubt that millions of are living by this advice and being lulled to sleep yet still.

Personal finance is much more complex and important than this cliche gives it credit for.

A Better Strategy

If you’re in debt, stop the bleeding. From there, strive for the highest personal savings rate you can achieve by increasing your income and decreasing your expenses. If you’re simply just keeping your head above water, you’re setting yourself up for failure.

Spend Less than you Earn Discussion:

  • Have you or people you know followed this popular personal finance advice?
  • Has it worked? Backfired?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • David says:

    I’ve never heard the phrase used in this way before. As an excuse to spend up to what they earn. I have always heard this advice given to people that overspend their earnings. Which is good advice to someone that spend over their earnings.

    I do agree with your position that someone shouldn’t be spending just under their earning. That’s a bad target. The target should be set at saving enough money to meet your personal financial goals.

  • Emily @ evolvingPF says:

    I like and use “spend less than you make.” Note that the phrase is not “spend just less than you make.” The phrase is flexible and a starting point. I agree with David that it’s primarily intended for those that currently spend more than they make and are racking up debt. For them, spending less than they make is a good goal. Once they reach that point, there are other possible goals to keep them from returning to spending more than they make. Then the phrase can become “spend much less than you make” with the “much” describing the individual’s savings goals.

  • Albie D @TalkingCents says:

    I understand that you believe the standard “spend less than you earn” is a bit too simple to stand alone as financial advice. But I think your point still goes hand in hand with that principle.

    “BAM!! The economy slows down, the breadwinner gets laid off, they can’t keep up with the home payments because they didn’t have emergency savings, they default on and lose the house…”

    Don’t you think that spending less than they earn would have helped in this situation? Spending less implies saving more. And that better enables a person to deal with an emergency situation like this.

    There’s not really a flaw to the advice. You’ve just added to it… “find more sources of income” and “save a lot”. Which are also fairly generic.

    You managed to attract my attention with a bold headline, but didn’t really provide any new ideas to accompany your opposition to the “spend less than you earn” staple.

    • G.E. Miller says:

      The problem with this phrase is that it doesn’t really direct you to do anything other than spending less than you earn, which, as I said, really only is pertinent to those already in debt.

      For people who like to spend, they are going to skew towards the bare minimum below what they earn. It leaves too much grey area to be good advice.

      The average retirement savings per person in this country is only $18,000. It seems as though we have an entire country that has just spent less than what they earned. Would you feel comfortable retiring on $18K?

      • G.E. Miller says:

        Actually, the $18,000 is per household, not per person.

        According to the Employee Benefits Research Institute’s 2009 Retirement Confidence Survey, 53% of workers in the U.S. have less than $25,000 in total savings and investments. The typical American household (headed by a 43 year old) has just over $18,000 in savings.

        The article you quoted does not provide a U.S. wide average.

  • Romeo says:


    I think your scenario is flawed. If the family lives by the spend less than you earn advice, then wouldn’t they have savings? And besides, your advice takes too long to dish out–it has to be a one sentence hitter. Maybe the change should be, SPEND LESS THAN YOU EARN, SAVE LIKE IT’S NO BODY’S BUSINESS, and LIVE DEBT FREE AT ALL COSTS. 🙂

    • Albie D @TalkingCents says:

      My same sentiment on the scenario. I also like how you summed up GE’s additions. That’s the point… the advice isn’t flawed, just not specific and certainly not complete. I just think that kind of goes without saying.

      But GE,
      I see what you mean about people taking that statement and just doing the minimum (spending JUST below what they earn), and that’s a valid concern.

    • Jennifer says:

      While I agree with you that the one sentence hitter is a necessity for attractive mass attention, I disagree with you slightly on the live debt free at all costs notion. While having no outstanding mortgage, car loans, or student loans are all things that we should strive for there are occassions where debt can be useful. I like to cite Robert Kiyosaki’s stance that the only good debt is debt that you do not pay for. For example, if I have the aility, in both mental capacity and market conditions, to secure an apartment complex and rent out the apartments at a profit, should I not consider taking out a loan if I do not have the 800K to purchase the building outright? Good debt can in fact increase your financial standing. It’s just that we have a very unhealthy relationship with bad debt in this country.

      • Ryan @ LifeFreshOut says:


        I think this is an often forgotten principle of persoanl finance and building wealth. It takes a bit of control and a level of sophistication that is not for people just learning about money, but leveraging debt can really make a big difference in terms of making money. I always think of the example of a young professional getting a car loan right after college in order to get to work. While the loan is a form of debt, if the job opportunity pays for the car and is a great starting point for a career of further returns, it may be worth it. It’s just hard to give that advice to a group of people and not expect someone to take it out context and use it incorrectly.

        Overall, I think that Spend Less than you Earn is used as a starting point, similar to coahces telling their athletes to Focus on what they are Doing or other advice such as that. No one line is ever going to sum up an entire field of study, or else there would be no need for PF blogs. There’s always further learning to be had, and hopefully people realize that “just making it by” is not the reason why millionaires have the money they do.

  • Kraig @ Young, Cheap Living says:

    I followed this for my first two years on my own. I went out and borrowed 100% on an expensive car though, so I’m not sure if that qualifies as spending less than I made. I didn’t lost my job or get into financial disaster because of it but it felt weird. I felt broke and had trouble sleeping at night knowing that if I lost my job I would be screwed.

    I did decide at that point to proactively to get myself out of that mess. I cut my expenses down to the bare bones while I worked hard to increase my income. And last year, I lived on less than half of my take-home pay. I now have a lot of room between me and a financial disaster. It feels outstanding. I wouldn’t trade it for the world.

    Great post.

  • TC says:

    I agree that ‘spend less than you earn’ isn’t enough, but I also think ‘strive for the highest personal savings rate possible’ is too vague. I could spend a few hundred per month less in rent, but the only apartments I’ve seen cheaper have reviews online detailing roach infestations, drug dealers, and noise issues. I still spend less than 25% of my post-tax income on housing, but technically I *could* be saving more. So maybe the real rule is that one-line rules on personal finance are not enough?

  • Matt says:

    The phrase is to simplistic. Spend seems to cover something you can control and less about SPENT and the incurring interest/fees from debt. Better summed up Live below your means. Gives a little more of a broad perspective.

  • Ron Ablang says:

    One should definitely pay oneself first. Otherwise, it’s hard to save at all. This is all easy to do when you are single and have it in place before marriage and kids. Then the whole playing field changes.

  • Jeremy says:

    Like Albie D, The headline caught my attention and I was disappointed in the article. ‘Spend less than you make’ is a quip, not the be all end all in personal finance and I don’t know anyone that would claim it is. And like David, I’ve never heard some use the phrase in this context before. The amount of debt in this country, both personal and public is crazy, so the LEAST people could accept is that you should spend less than you make. And if you already get that, then great, take the next step.

    To say that a quip is bad advise because it doesn’t go far enough or give enough detail doesn’t make any sense. By that logic ‘Shop the perimeter of the grocery store’ is flawed health advice because people might think they can eat 10,000 calories a day as long as its all from the perimeter. One-liners are just supposed to be an easy to remember starting point.

  • devin says:

    The best thing you can do to save money all in all is be generously giving , what grows around comes around

  • MoneySmartGuides says:

    I tell people to “spend less than they earn” and fully believe in it. But it goes along with “pay yourself first”. If you take your paycheck and save 15-20% from the start, you are free to spend everything that is left over because you are still saving 15-20%.

    While your example is extreme and has happened to many out there, I think that many (not all) of those people really weren’t living within their means. If they have loans are the cars, then they really cannot afford them. I personally have two cars and make no where near six figures. I paid cash for both of them (a used 2001 Volkswagen and a then-new 2005 Subaru). They aren’t brand new (combined they have close to 250K miles) but I don’t need new. I’m not trying to impress anyone.

    We need to stop wanting to have everything now. Learn self-discipline, save up for large purchases and then buy them. You may even find in time you don’t really want the item in question.

  • Bethy says:

    I get your analysis. The advice is TOO simplistic. And I agree. I think it’s more of a RESULT of personal finance success stories. Those that are able to manage their finances well, pay down their debt quickly, and save a good bit of their income are essentially “spending less than they earn.”

  • Kelsey @ Zero to One Million Challenge says:

    I wouldn’t go so far as to say it’s flawed financial advice. It’s typically a huge first step and a starting point in financial freedom for those who are currently amid financial chaos. No other advice will help you if you aren’t spending less than you earn. On the other side of it, it should absolutely not be the only tactic you employ in gaining financial independence. If you’re earning $100,000 a year but you’re spending $99,000, of course you’re spending less than you earn, but you’re also not making substantial progress, either.

  • I couldn’t agree more! I like this a lot, but I wonder about the practicality. In other words, I wonder if people will get overwhelmed if they don’t start with something as simple as this. Yet, at the same time, I agree that shop-aholics could use this to continue their pointless spending.

  • Megan says:

    I have always liked the advice “spend less than you earn,” but I’ve never thought about it as a minimum goal. I suppose some people must.

    I’ve almost always heard it paired with the other side of the coin: “earn more.”

    I think my favorite phrasing of this general piece of personal finance advice is “spend less, earn more, save the difference.” I don’t know how a person attempting to do as little as possible would take it, but to mean this means just what GE said, “[S]trive for the highest personal savings rate you can achieve by increasing your income and decreasing your expenses.”


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