Expense Management & Scarcity Mindset

A little financial advice today.

Twitter recently served me up some content from a private equity guy who posted something like this:

“For for every ounce of energy you spend managing your expenses, spend three times as much on increasing your income”

The reasoning: you can only cut your expenses so far, but boosting your income has no ceiling. It’s not new advice. I’ve heard different versions of it repeatedly over the years & I’ve actually posted about it applied to the P&L. 

But when it comes to learning lessons, timing matters. 

Right now I am gearing up for a home purchase and a car purchase in objectively one of the worst home & car markets in 15 years. It’s rough out there. Particularly for a cheapskate like me. As a bootstrapped entrepreneur, frugality is part of my DNA. I’m reflexively allergic to spending. I go as long as possible without buying something, and when I do finally have to buy it, I work my ass off to figure out some way to get it below market. 

Which is exactly what I’ve been doing for home + car. What I’ve found that deals in my area are exceedingly rare. We still have to buy 🥴 so it’s felt like being between a rock & hard place.

When I read the above tweet, I noticed a change.

When I imagined spending three times as much effort trying to raise my income, and being good with just getting an OK deal on these big ticket purchases, I immediately felt liberated. Like a heavy weight was lifted off my shoulders.

The feeling was key. What I learned was this: not only does managing expenses provide a diminishing rate of return, it also produces scarcity mindset.

I’m defining scarcity mindset as a worldview with an emphasis on resource conservation, where the chief driving emotions are fear & anxiety. Your approach is based on loss aversion. "Things are OK, and I need to put in work just to keep them OK."

By contrast, when I imagine trying to spend 3x more time raising my income, I feel an abundance mindset. My emphasis is on new resource generation, the chief driving emotions are excitement, wonder, curiosity. Expansive thinking. "Things are OK, and I can work to make them better."

My takeaway: 

Spending 3x more time/energy on increasing your income than managing expenses isn’t just a more financially logical way to live, it’s also a more pleasant one. From which perspective would you rather operate?

One challenge in living by this advice is that, in my experience, finding ways to grow your income can be a lumpy process. By lumpy, I mean going through substantial periods of putting in work to grow your income, and not yet seeing results. This can be discouraging and prime you to focus instead on expenses, which are much more directly & immediately controllable. Don’t fall for this trap. The lumps are out there 🐫

I’m writing this lesson down in my blog and sharing it with you because I need to codify it.

Caveat: This lesson is appropriate for me because I’m frugal to a fault. Most people in America have the opposite problem. They spend way too much & live paycheck to paycheck. If you’re reading this blog, that’s probably not you. But consider which end of the spectrum you fall on when thinking about applying this lesson. I’m reminded of Morgan Housel describing Wall Street guys working 100 hour weeks trying to get an additional 0.5% delta on their portfolio when there’s an incredibly easy 3% available via spending cut, created by lifestyle bloat.