Cup of latte

Maximum financial firepower

Is it better to cut your expenses or focus on earning more?


We’re talking here about most of us, not billionaires. If you already have more money than you can possibly spend in your lifetime, you probably don’t need to worry about cutting expenses, although you still may want to pay attention because you’re a prime opportunity for the art of the rip-off.

But let’s say you’re in the want-to-be-wealthy stage. What does that even mean? I think there are a few stages of what might make you feel wealth:

Stage one: Making enough to pay all your bills

Especially depending on your age, this may be a very satisfying stage to reach. For many millennials, and many people older than that, knowing that you have enough coming in to cover everything—without credit cards—would make for a very secure, if not wealthy, feeling.

Achieving this, or exceeding it, will mean keeping a careful watch on expenses, and having a solid repayment plan for student loans. Too many of us have an agenda for what we’re going to do with any cash gift, or tax refund, or salary increase. Achieving wealth means being very careful not to pre-spend anticipated windfalls, especially since if they don’t materialize you’ve incurred debt, and that’s definitely not wealthy.

In the experience of my clients, I’ve seen that it’s generally easier to increase your salary by changing jobs rather than convincing your employer to give you a significant raise, so keep your antennae up and be aggressive about managing your career.

Stage two: Having money beyond immediate needs

The descent into serious debt could have been stopped, for many people, by having an emergency fund. It can be very, very difficult to accumulate this. It seems the emergencies always occur before the fund is built.

Lots of pundits I admire scoff at the “latte factor” but often big wins are based on the accumulation of lots of little wins—so I do think change jars in your kitchen, carrying homemade coffee in a thermos, walking or biking instead of driving, whatever, and saving the difference can help build up this second crucial step. (Even if you’re “beyond” this stage, you can always give it to charity. And less consumption is better for the planet.) Because you’re spending less, you have some surplus to stash that isn’t earmarked for specific spending—so now you’re wealthier.

Savings and increased earnings can now be directed to accomplishing goals (house down payment, travel to dream destination, new car) as well as essential long-term savings for retirement (whenever you aim to retire).

It’s been my observation that no matter how much people earn, they can always spend more. Once you have a solid emergency fund and enough earnings to cover your expenses, you have a little more breathing room for charging ahead or changing your career, or developing a side business, or focusing on making well-thought out investments.

Stage three: making money beyond your time commitment

This stage, which many people never reach, is when your money or business venture is making money for you, without your everyday effort. If you have invested wisely, or have some sort of business that makes money without your continuous participation, your wealth level is enhanced.

This is the level that permits retirement. Of course, people who control their expenses can reach it sooner or more securely. The security is enhanced if you have some sort of guaranteed income (pension, annuity), have fungible expenses, or enough of a portfolio that a huge dip in the market won’t affect you all that much.

The absolute numbers for wealth don’t matter as much as 1) your spending levels and 2) whether you’ve found a way to build a source of income or an investment portfolio. So, someone who’s technically a millionaire, has a paid for house, controlled expenses, and the maximum Social Security may have a yearly income of about $70,000. Is this wealthy or scraping by? Depends on your property taxes, your health care costs, what repairs are needed on the house…for some, it’s a fortune; for others, unthinkable.

Stage four: Never spend it in this lifetime

Well, we can all dream, right? This is a real test of your soul: what do you care about? What good can you do in the world? Have you thought about who really deserves and will benefit by what you leave behind? Unless you’re the kind of person who views this wealth, and the ever-increasing hoarding of it as some sort of superiority marker, you’ll have to do something with it eventually (and please don’t decide to run for president). Think carefully not only about what your legacy will be, but how you pass it on. I’ve seen people whose spouses only married them for the money, who were busy spending the spouse’s money, who were never again taken seriously in a career, who were easy marks for exploiters, who were hounded for donations, and (in the case of trusts) made mostly the bank managers and attorneys rich. Those on the outside may think it’s a nice problem to have, but as the temporary steward of wealth (and we’re all temporary), it requires seeking guidance and developing thoughtful planning.

And for those in stages 1-3, I hope you get here.

A financial planning lesson from Notre Dame

If I were superstitious, I’d say I bring destruction when I travel. Back in 2000, I’d left Paris only a few days before the Concorde crashed. In 2008, I spent a lovely day roaming Athens’ Syntagma square, the scene of riots only a few weeks later. On that same trip, I spent quite a bit of time wandering around Cairo’s Tahrir Square and the Cairo Museum—it took until 2011 for Egypt to feel the “effects” of my visit. But I swear I had nothing to do with the fire at Notre Dame—I’ve been there about half a dozen times and until now it’s escaped my curse.

Nevertheless, it’s an unqualified disaster, and I can’t find any humor or irony in it at all. But it did get me thinking about places I’ve always wanted to visit, and goals as yet unachieved.  How sorry I feel for people who never saw it, and may never see it intact again in this lifetime. I remember well the feelings I’ve had for other places and opportunities that suddenly seemed to disappear: after 9/11, how many of us wondered if the whole world had changed and if we’d ever be able to travel again? In 2013, dear daughter and I were in London; would we go now? I’ve always wanted to travel in Israel, but never been able to wrap my mind around the dangers. And I have a long-standing aim to go to India, and to take a cruise to Alaska, both completely unplanned as of now.

How can we change that? Actually accomplishing travel (or any dream that costs money) has a better chance of becoming reality by working through some clear steps.

What do you actually want to do?

I’m happy schlepping through Europe, and don’t worry about languages (where I can scrape by in a few), managing train travel, or finding a hotel. I’d be pretty content with an inexpensive, weeklong cruise to Alaska with an interior cabin. But an India trip is a different story—I want everything taken care of, a guide, transportation arranged and probably first class, hotels all pre-booked. I’ve also considered a language immersion trip. Some people gravitate to cooking schools, or ukulele camps, or fiber festivals, or following the route of Joan of Arc. A theme can be quite an organizing principles, and you should decide just how exactly you want to travel.

What are the obstacles?

Money is the most common. Turns out, time available also can be difficult. Then there are the mental quirks that only live in my (or your) head: although I’ve wanted to see the Palio in Sienna, I’ve actually never made the slightest effort to think it through because it’s run in July and August, probably the two worst months for seeing the rest of Italy. Consequently, while I’ve been to just about every other Western European country, I’ve missed Italy entirely. Unless you can identify what’s stopping you, you can’t investigate and make a plan.

When do you want to go?

This can be both what season and what month or year. You need to give yourself enough lead time to come up with the money and find the time. But having a specific calendar timetable can move the dream from someday to (exact date). Someday will never happen.

What do you enjoy once you get someplace?

For me, it’s all restaurants, museums, and historical sights (some with significant admissions costs). As long as it’s clean and close-in, I don’t care much about hotels. My toleration for shopping is about 2 hours max (unless it’s the Marché aux Puces or a museum shop). You’ll never find me at a sporting event, and only once in about a million miles of travel have I ever taken a nature hike. YMMV. Preferences definitely influence cost and destination selection.

What does it actually cost?

It’s a lot cheaper, of course, to go to St. Louis for a weekend than to spend three weeks touring India. But what’s the actual possible dollar figure? Have you looked up airfare, packaged tours, hotel costs in Amsterdam? Do hotels at your destination customarily include breakfast? What level of luxury are you after? Will you rent a car or buy a rail pass? Researching the trip has been shown to extend the pleasure—the anticipation and choosing possibilities is a huge part of the fun.

Can I get it cheaper?

Here’s where the whole world of travel hacking comes in. Based on my own experience, it’s easier to get it cheap if the destination is popular, close, or more familiar. Our 10 day London trip (including Bath and Oxford) cost about $1,000 total for the two of us. Key West was only the cost of food and a not inconsiderable amount of tropical booze. A western Caribbean cruise we took cost the price of the shore excursions (I could do better now). But so far I haven’t had similar luck trying to snag a low cost way to India. I’ve had the best reductions using travel points of all kinds, leaving at the last minute, and not caring too much where I was heading or precisely where I was staying (Hyatt Regency St. Louis for $49/night—mystery selection on Priceline).

Once you know where and when, you can set up all kinds of alerts, figure out when the cheapest days and times are, and concentrate your points spending. Make a plan for yourself and make those dreams real before they turn to smoke.

Why you need an emergency fund–20 reasons

Read any financial advice article (including mine) and you’ll be told you need an emergency fund. Usually this is attached to some number (like 3- or 6-months’ salary or expenses) that will make you feel hopeless that you’ll ever achieve it. I’m here to say that even having $1,000 or $5,00 stashed is going to help out a lot, and help you avoid a lot of bad results. And, if you don’t have an emergency fund you’ll never get out or say out of debt: we don’t know what the emergency will be, but unexpected things occur regularly. Having some emergency is definitely predictable. Here are a few reasons you need something.

  1. You lose your job. This is the first thing everyone thinks of—and probably requires the largest emergency fund, since being without any income (even if you collect unemployment) is pretty scary and can last more than a few months.
  2. You have a health issue and have to cover your deductible and out of pocket expenses. Depending on when this occurs in the year, you may need to cover more than one year’s deductible. Let’s say you get sick in November, but it lasts into February—2 years’ worth of deductibles and out-of-pocket.
  3. You slide in the snow, doing damage to your car (bad), or to someone else’s car (worse) or both (worst of all). Neither of these expenses is worth claiming to your insurance company know, but given the electronics in cars nowadays, one came up to $700, and the not very happy person whose care you hit cost $500. Damages to your home and car that are near the deductible are probably not worth claiming (because they’ll raise your rates or drop you.)
  4. You have a fire. Even if you have homeowner’s or renter’s insurance, moving immediately to a hotel, eating out exclusively for any time period, or even couch surfing at a friend’s is going to cost something.
  5. You have a fire and it only wrecks the kitchen. You’ll immediately incur higher food costs.
  6. Your refrigerator, computer, or other appliance suddenly goes kaput.
  7. If you’re a homeowner, the list is almost infinite: tree falls, sewer line gets clogged, hot water heater’s bottom drops out, furnace or air conditioning die, dog destroys couch or bed, cat decides they prefer your wall to wall carpet to their cat pan and you don’t discover it for a while…
  8. Pets need veterinary care.
  9. Someone dies and you have to travel to the funeral, or you have to bury someone.
  10. You lose your job and have to buy temporary health insurance.
  11. You lose your job and need assistance (coach, networking groups, lunches out, etc.) in helping you find a new one.
  12. A loved one needs immediate residential care or home assistance not covered by insurance.
  13. You or your child need a divorce.
  14. You need to hire a lawyer for any reason.
  15. Your child needs special testing or tutoring not covered by insurance or the school.
  16. You have to buy a car, unexpectedly.
  17. You have to move.
  18. You need dental work, glasses, or a hearing aid (which are not usually covered by insurance). Check your insurance, especially if you have children who need any of these.
  19. You have an accident or illness that requires you to pay others for services you routinely did for yourself (grocery shopping, rides, home maintenance and cleaning).
  20. You work for the federal government.