People tend to spend more if they make more. It's part of the “wealth effect,” where someone spends more because they have more wealth (more income). But that gets people into trouble when that income is no longer there because they lose their job in a recession.
This is because people usually spend credit when the times are good and not cash, racking up debt. And if they lose their job during a recession, and their debt service payments are too high because of all the debt they took out, then their house or car will be repossessed…or they might get sued in court because they can't pay the credit card bill.
People spend credit during the good times because it is much easier and faster to get access to more money than they have in cash. Plus, people do not look at credit the same way they do cash. Credit wasn't originally their money, so they don't attach as much value to it, so they spend it faster.
Cash, people had to work for, so they hold much more value to it. Therefore, they want to hold on to it, and just spend other people's money (credit), even though credit, technically, must be paid back from future cash (that one earns).
Bottom line, income should have nothing to do with expenses and expenses should have nothing to do with income. They are completely separate issues. Just because you make $500,000 a year, does it mean you have to spend $500,000 a year.
Living modestly, and not having your income or wealth determine your spending habits, is the fastest way to building wealth. Because how you build wealth, is your make more, but spend less or the same, or at least have a growing spread between the two. So that increase savings can be put in capital assets that accumulate in value over time.
If you always match your spending to your income, you will never build wealth. Because at the end of the day, buying that red Corvette or $5,000 purse, is not going to make you happier than having a comfortable retirement. So you might as well save it, stick it in Bitcoin, and be a millionaire in 20 years :)
Stay frosty people
