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Reducing spending more effective than earning income

Discussion in 'General Property Chat' started by Terry_w, 23rd Apr, 2016.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Cutting your spending rate is more effective than increasing income by the same amount


    Did you realise that decreasing spending is much more effective than increasing income by the same amount? It is obvious really, but something that many people forget and that is to spend money you have to earn a much higher amount to replace it.

    Example, you spend $1000. To get $1000 you have to earn it and earnings are taxed. On a 37% tax rate, you would have to earn $1,587 to be left with $1,000.

    If you are on the top tax rate of 47% that would be $1,887 needed to be earned to generate $1,000 after tax. Add in the Medicare levy and it gets worse - $1,961.


    So reducing your expenses would be almost as good as earning twice as much money.
     
  2. Adele

    Adele Well-Known Member

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    People generally tend to increase their spending when their incomes grow too. Kind of beats the purpose.
     
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  3. pinkboy

    pinkboy Well-Known Member Premium Member

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    I don't necessarily disagree with your numbers provided, but I do disagree with your sentiment.

    Because there is already a net cost to being able to live our lives (rent/mortgage, food, insurance etc), you cant reduce your spending to $zero. What you can do, and have the capacity to do, is to earn more income, well beyond the $1000 or $2000, and still keep the same net expenses - which puts you in far greater position than scraping pennies.

    Saving is finite, earning income is infinite.

    pinkboy
     
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  4. teetotal

    teetotal Well-Known Member

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    Agree, not to zero. But do you know you can live on reduced rent/mortgage by renting/buying a cheaper place.
    You can eat homemade cheap food or even grow your own may be.
    Just some thoughts.
     
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  5. pinkboy

    pinkboy Well-Known Member Premium Member

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    What happens if people are already at that point? The only way up is to earn more income. That's my whole point - we have a net amount or the lowest possible amount we can live off.

    Again - saving is finite, earning income is infinite.

    pinkboy
     
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Good points, but if you're trying to increase your borrowing capacity it don't really help. Lenders have minimum figures for all those 'cost of living' expenses Pinkboy has mentioned. It doesn't matter how low they actually are, the banks will use the higher of the actual amount or their own modelling.

    In general I'm also inclined to agree that with the right kind of approach, earning more money is quite achievable and the limiting factor is yourself. After a certain point, cutting expenses can be a much more difficult exercise.
     
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  7. lennyc

    lennyc New Member

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    Why not do both? My goal is to maximize income minus spending in whatever way is easiest.
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

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    This can become another tight@rts thread.

    • Smoke OP's/ bum a ***
    • Leave before it's your shout (but occasionally do the first shout so it's remembered) ;)
    • Live off one income (& save the other)
    • Collect benefits in several names
    • Live with parents (free board/feed/baby & pet sitting)
    • Ride a bike or walk to work, shops etc
     
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  9. Joynz

    Joynz Well-Known Member

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    A lot of people don't realise how much they spend on takeaway food a week. An easy opportunity to save and likely much healthier too.
     
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  10. Greyghost

    Greyghost Well-Known Member

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    Reading this wine sitting in a wine bar..
    Hmm.. Wonder what discretionary spending I could remove!
     
  11. Blacky

    Blacky Well-Known Member

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    Like others I dont disagree with the maths, however, I dont see it being an 'or' arguement.
    "reduce expenses - or - increase income".

    Both methods can be used simultaneously very successfully.

    A lot of people wont take a second job becuase of the increase tax they (appear) to pay. Its one of the daftest reasons Ive ever heard not to increase income. "no - I wont go and earn an extra $1,000/week because then I have to pay and extra $400 in tax".

    There are only 3 types of people in the world. Those who are good at maths and those who arent.

    Blacky
     
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  12. Hodor

    Hodor Well-Known Member

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    The trick is to not spend (at least completely) any extra money you earn. I see many people get a raise and just increase their lifestyle by the same amount without realising it.

    Wine is not discretionary spending. I also like that you are "Reading this WINE", can see where your thoughts are at ... and now mine.
     
    Last edited: 23rd Apr, 2016
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    My general thought is if you successfully earn more than the bare base through hustle, use a small part to reward yourself and use the rest for the greater good. A bit of positive reinforcement makes the effort more sustainable.
     
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  14. moridog

    moridog Well-Known Member

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    I endeavour to reduce discretionary spend as much as possible so although I earn heaps more money than I used to, I try not to spend any more money than I did, but oh! the joy of paying bills when they come in and repaying the credit card in full every month! Only a few years ago I used to have to get petty cash from our reception before I went out somewhere I knew I would have to pay for parking, now, I can pay for it and reclaim the money. Sounds petty (boom boom) but it reminds every time of how lucky I am. I would walk a mile before I would shell out for things I place little value on but that is just me, an 80 cents Coles Express flat white tastes the same to me as a $5 flat white in a Caf. Each to their own.
     
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  15. Heinz57

    Heinz57 Well-Known Member

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    Is wine sitting like house sitting? I think I would be good at that
     
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  16. Scott No Mates

    Scott No Mates Well-Known Member

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    Have to swap the Uber for the train home. ;)
     
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  17. Scott No Mates

    Scott No Mates Well-Known Member

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    You have to remember that you can't break any bottles.
     
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  18. Magnet

    Magnet Well-Known Member

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    If it's red wine, it's an antioxidant and therefore essential health spending.
     
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  19. RumpledElf

    RumpledElf Well-Known Member

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    I would have way more in savings if I stopped buying houses. Does that count?
     
  20. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    Once you've become disciplined enough to reduce your spending to the essentials during your accumulation phase, at that stage it becomes easier to earn more money than to try squeeze out even more savings from your already depleted source/s.
     
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