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When Your Income Increases…

April 29, 2011

In an article in the Wall Street Journal today:

Incomes grew 0.5% in March from February, following an upwardly revised 0.4% increase in February, the Commerce Department said Friday. Consumer spending increased by 0.6%, after rising an upwardly revised 0.9% in February.

I realize that our country’s budget is different from an individual family’s budget, and that increased spending often has a positive effect on our overall economy, but don’t you see a little lesson-in-the-making here?

If your income increases by .5%, and then your spending increases by .6%, then you’re worse off than before your raise. You’re worse off by .1%. It’s just math. Now, I know it isn’t as simple as that and that percentages of income are different from real-dollar amounts, but the lesson is the same.

You always have a decision to make when you receive a raise. You can increase your spending, which may seem fun. Or you can pay something off, save more money, or increase your investing.

Rule Number One when it comes to being wise, frugal, and future-minded: Spend less than you earn.

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