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




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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21 Comments

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