While chatting to a friend a few days ago about bad spending habits, he brought up the Parkinson’s Law. Brian Tracy, who is CEO of Brian Tracy International (a company that specialises in the training and development of individuals and companies) did an interesting write-up on this law.
This law gives better understanding as to why most people retire poor at the end of their working lives. It was developed by an English writer named C Northcote Parkinson. It states that regardless of the money that people earn at their jobs, they end up spending the entire sum and at times even more than they would be earning.
Most people are earning a considerable amount more than they did at their initial jobs. However their expenses seem to rise in direct proportion to the increase in their income. It would seem that every cent that is earned is required to sustain their current lifestyles.
This is such a true reflection of how most people function. My father has a wealthy Greek friend who drove a “box” Nissan Sunny for a long time. People would ask why he drove that particular make when he could afford a flashier car. His response was that all he needed was a vehicle that took him from point A to point B. He also pointed out that the native Zimbabwean tended to live an ostentatious lifestyle which involved building houses with more bedrooms, lounges and bathrooms than we had use for instead of building one house to live in with just enough room and then build another house that could be rented out, thereby generating some income. It appears it is because we are more concerned about keeping up with the Jones’ that we end up living substantially beyond our means. We want to be seen to be living it up by our peers and family but really, who cares if you are living it up or not? It’s not as though anyone else but those you choose can partake of your wealth with you. I believe this was the downfall of many a dealer in 2009 when our economy was dollarised. They lived it up so much in the present that they forgot to plan, save or invest in their futures. When the tables turned unexpectedly, they were caught off guard and many of them still haven’t recovered.Also, some did not re-adjust their lifestyles to match the new economic situations resulting in them drowning in debt in order to maintain their once abundant standard of living. As tempting as it may be, you need to resist the urge to spend your entire income. This will allow you to accrue wealth that can be saved or invested. Tracy proceeds to state the second corollary which encourages you to slow down on your spending. Your income and expenses should not increase at the same pace. When you are in your late 20s to late 30s, it is appealing to look like you are making it by driving a pricier and not necessarily cost-efficient car, live in a more prominent neighbourhood or go on holidays one cannot afford.Would it not be great to be able to spend your retirement years travelling and not have to work until you are 90? As my father says, suffer now for future rewards.
A summary of what to do to harness your expenditures
Last month you kept an expenses journal. This month, slow down your spending. Save and invest for the future. Brian Tracy’s suggestions are: “First, imagine that your financial life is like a failing company that you have taken over. Institute an immediate financial freeze. Halt all non-essential expenses. Draw up a budget of your fixed, unavoidable costs per month and resolve to limit your expenditures temporarily to these amounts.Carefully examine every expense. Question it as though you were analysing someone else’s expenses. Look for ways to economise or cut back. Aim for a minimum of a 10% reduction in your living costs over the next three months.Second, resolve to save and invest 50% of any increase you receive in your earnings from any source. Learn to live on the rest. This still leaves you the other 50% with which to do as you desire. Do this for the rest of your career.”
