The Golden Rule of Personal Finance

PUBLISHED Nov 4, 2022, 12:16:48 PM        SHARE

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The Leaning Tower of Pisa has a foundational problem. It’s 186 feet tall and weighs 14,500 tons. But its foundation is only 10 feet deep and built into silt and clay.

Five years after construction (~1178 A.D.), the foundation shifted and the tower famously “leaned.” Oops.


Every building needs a strong foundation. It applies to all buildings of all sizes at all locations.

This brings us to a golden rule of personal finance, one that applies to all people at all levels of income.

Spend less than you earn.

Ok. Let’s shut the browser. I know this one.

I know. You think you know what I’m talking about. But in my ever-growing experience in personal finance, most people think they know this idea, but have not truly internalized it. It’s a foundational rule we too often ignore.

We know the stories of former athletes or Hollywood stars who file for bankruptcy.

“How is this possible?”

Simple. They spent more than they earned.

“But surely someone with $100 million should be able to not spend all their money?!”

I get it. But overspending behavior is the classic slippery slope. Just as buildings of all sizes see foundational issues, people across the wealth spectrum struggle with overspending.

I have a friend of a friend who played Division 1 football and eventually made it to the NFL. But his family was dirt poor growing up. I thought this admission was so profound:

“We were so poor. There was never much money. But the money that was there…it always quickly disappeared. You got used to this idea that money is scarce and never sticks around. So whenever I got money as a kid, it was like, ‘Spend it now, or you might not get another chance to spend it.’ Boom. And I had a big list of things I wanted to spend money on. It’s like a perfect storm. So now I just want to spend everything, save nothing. I don’t trust saving because I’ve never actually seen it work.”

Here’s a guy making millions. But his financial foundation was only inches deep, not nearly strong enough to support a large income.

Our brains work against us. This is a foundational lesson from behavioral economics. We criticize others for overspending but find ways to justify our own similar behavior.

We say, “If I earned another 20%, then I’d start saving more money.” But when the 20% comes, we buy clothes that are 20% softer, houses that are 20% bigger, or meals that are 20% more organic.


The slope remains slippery all the way down. If you’re a global touring music star partying at the club, you justify a $10,000 bottle of champagne. If you’re the heavyweight champion of the world, you justify owning a tiger. We all struggle to say, “enough“.


No way, you say. I just don’t get it. I’d never own a tiger.

You’re not alone. I don’t get it either. I’m with you.

But a few weeks ago, Kelly and I spent $125 on a dinner for two. A nice treat, right?

But a big part of the U.S. population would look at our dinner and say, “No way. I just don’t get it. That’s a full week of groceries or a month of gas. I’d never spend that on one meal.”

A smaller segment of the population would say, "You call $125 a “nice” dinner? How quaint…”

My point is, overspending and comparison happen to all people at all income levels. We all spend money and all judge others on what they spend. Most of all, we all look at people richer than us and think, “If I were them, I’d be all set. Because I’d never spend money like they do on that thing.”

Getting back to foundational fundamentals, I don’t care what people spend money on. Meals, cars, tigers (though, I’m not sure there’s an ethical way to own a tiger.) Because the key is spending less than you earn. Preferably, spending much less than you earn. I ensure I’m doing this through my budget and net worth tracking.

In my experience, most people (including myself, at times) pay lip service to “spend less than you earn.” Don’t worry. You’re only human. But if you want financial success, you’ll eventually have to back up that lip service with real action. You’ll need to dig deep and build a financial foundation that supports your current and future life.

On the spending front, remind yourself of this simple truth:

  • Advertisers convince you that buying stuff will make you happy.
  • Actual psychological research provides no such evidence. In fact, it might make you unhappy.

You want to spend less? Remind yourself that you’ve probably been brain-hacked by advertising (I know I have) into thinking that more spending = more happiness. I don’t like that I’ve been brain-hacked. I resent it. So out of spite towards advertisers, I actively fight my impulse to spend.

It’s a struggle. I have to dig deep. Just like digging a foundation.

But if you want to build a strong financial life, that’s where it starts. A strong foundation. Spend less than you earn.

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Originally Posted in The Best Interest

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