Last year, a Filipino named Dionie Reyes made big news
when he won P14M from the PCSO jackpot draw back in April 2008—and lost
it all in just three months. He apparently spent all his money on an
expensive house, an SUV, vices, and lavish cash gifts to friends and
family. In the end, he was in debt for P500,000.
This story is not common—many people all over the world who experience a windfall of cash wind up losing all their money. Could it just be bad luck? Or does it have something to do with their habits around money?
Lifestyle inflation
Take time to ask yourself these questions. One: when you make a lot of money, do you immediately come up with ways to spend it all? Two: are you trying to keep up with someone else’s lifestyle, or the lifestyle that media portrays “you should be living right NOW?” Three: is what you buy never enough and must you continually catch up with the latest model/fashion/trend? Four: Are you living from one paycheck to the other, with little to no savings in between?
If you answered yes to most of these questions, it’s likely you’ve fallen under the habit of lifestyle inflation. And you’re not alone. So many people subscribe to this bad habit because it’s celebrated everywhere in media and our consumerist society.
This pervasive attitude makes us burn through our income very quickly, because no matter how much money we make, we spend exactly as much as we earn.
It’s not wrong to spend on necessary things. But the excessive spending caused by lifestyle inflation effectively kills wealth. It robs you of future income and keeps you hunting for jobs that can support your lifestyle. And when the day comes when you are either unable or unwilling to work, you’ll find there’s no more income to be had and you’ll still have the nagging urge to spend money.
Get past it: Cultivate the habit of paying yourself first: Whenever you make money, set aside a regular amount for savings. You may be tired of hearing that, but there’s a reason why people keep repeating it.
Why is saving paying yourself first? Imagine this: every time we get paid a wage, we don’t so much as make money as earmark it for other people. The government gets a cut from taxes. Then the electric, water, and cable companies get paid, followed swiftly by the telecoms, internet, transportation, supermarkets, even the tobacco and liquor companies. By the end you end up with nothing, or close to it.
So invert the equation. Pay yourself first by saving before you spend on anything else. This money you save will buy your future. Even if you are capable of setting aside only a few pesos a day, what you’re aiming for is to build the habit of saving and doing away with any unnecessary spending. Understand that when you do make a windfall of cash later on, you are NOT going to magically grow the habit of paying yourself first. Both good and bad habits are created over a period of time. So while your income is small, cultivate this practice. If you can be responsible for the small things, you can handle the big things as well.
This story is not common—many people all over the world who experience a windfall of cash wind up losing all their money. Could it just be bad luck? Or does it have something to do with their habits around money?
Lifestyle inflation
Take time to ask yourself these questions. One: when you make a lot of money, do you immediately come up with ways to spend it all? Two: are you trying to keep up with someone else’s lifestyle, or the lifestyle that media portrays “you should be living right NOW?” Three: is what you buy never enough and must you continually catch up with the latest model/fashion/trend? Four: Are you living from one paycheck to the other, with little to no savings in between?
If you answered yes to most of these questions, it’s likely you’ve fallen under the habit of lifestyle inflation. And you’re not alone. So many people subscribe to this bad habit because it’s celebrated everywhere in media and our consumerist society.
This pervasive attitude makes us burn through our income very quickly, because no matter how much money we make, we spend exactly as much as we earn.
It’s not wrong to spend on necessary things. But the excessive spending caused by lifestyle inflation effectively kills wealth. It robs you of future income and keeps you hunting for jobs that can support your lifestyle. And when the day comes when you are either unable or unwilling to work, you’ll find there’s no more income to be had and you’ll still have the nagging urge to spend money.
Get past it: Cultivate the habit of paying yourself first: Whenever you make money, set aside a regular amount for savings. You may be tired of hearing that, but there’s a reason why people keep repeating it.
Why is saving paying yourself first? Imagine this: every time we get paid a wage, we don’t so much as make money as earmark it for other people. The government gets a cut from taxes. Then the electric, water, and cable companies get paid, followed swiftly by the telecoms, internet, transportation, supermarkets, even the tobacco and liquor companies. By the end you end up with nothing, or close to it.
So invert the equation. Pay yourself first by saving before you spend on anything else. This money you save will buy your future. Even if you are capable of setting aside only a few pesos a day, what you’re aiming for is to build the habit of saving and doing away with any unnecessary spending. Understand that when you do make a windfall of cash later on, you are NOT going to magically grow the habit of paying yourself first. Both good and bad habits are created over a period of time. So while your income is small, cultivate this practice. If you can be responsible for the small things, you can handle the big things as well.
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