Spending less than you earn

I was asked at a barbecue for my best tip for how to get ahead with money. Wow, I felt put on the spot.

After the better part of two decades speaking to money experts, what nugget of wisdom would my Saturday afternoon, sausage, beer and cake-addled brain bring forth?

I fumbled for an answer in my suddenly blank mind. ‘‘Well, you can start by spending way less than you earn,’’ I said, which sounded a little critical, as if I were accusing my questioner of being a spendthrift.

Like a patient playing word association with their psychiatrist, my answer was revealing.

Had I taken more time, I might have glibly remarked that a good starting point was to be enter the workforce at a time when houses were sensibly priced.

But ultimately, getting wealthy requires generating a surplus to save, invest and pay off debts.

Wealth accumulation for the humble salary slave is a steady

GOLDEN RULES

Spend less than you earn Invest your surplus Have a plan process. To prosper, wage slaves need to budget to have money left over at the end of the month, which can be put to work earning interest (such as bank deposits or loans), dividends and capital growth (shares, KiwiSaver and so on), or property.

The money you invest need not all be your own. Harvest those KiwiSaver subsidies, people!

More entrepreneurial types eschew steady-as-she goes wealth accumulation, and may go years ploughing every cent they earn back into their business.

For them, the income/ expenditure ratio turns positive when they sell the business, or it starts turning a profit.

Luckily, at the barbecue most people were well-paid, and, like myself, had been sensible enough to be born in kinder times, having bought their million-dollar homes for a fraction of their current value, and where young people spent more of their income than they can today, and still expected to get ahead.

Deciding on how much you should be saving is tough.

For devotees of the internetspawned cult of the extreme frugalism, anything short of saving 40 per cent of your salary is failure. Some claim stunning results, and with good reason.

‘‘Getting wealthy requires generating a surplus to save, invest and pay off debts.’’