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Wealth Is What You Don’t Spend

Let me tell you a story about why some people aren’t as financially secure as they could be. It starts with a weight-loss study.

Fitness is a $30 billion industry. Almost 40% of Americans are obese.

How do you reconcile those figures?

You could say a lot of people don’t exercise. Or they aren’t exercising enough, or they aren’t doing the right exercises. All three are correct.

A group of researchers last year found a fourth reason: The majority of those exercising for weight loss either lose no weight or not nearly as much as they should.

The reason, the researchers found, is simple. Exercising makes you feel like you accomplished something healthy, which can rationalize a post-workout food binge. Eating a pizza after sitting on the couch all day might bring guilt, but doing it after a jog feels like a justified treat.

A lot of exercise can be offset by a lot of food. That’s what we do, and we do it because exercising gives us a moral license to eat more.

These aren’t small numbers. Food “compensation” seduced its way into 90% of the exercisers’ lives. Another study found that “people fresh from the gym overestimated their energy use by up to 400 percent and ate more than twice as many calories” as they had just burned off.

Something obvious but hard to deal with in real time is that exercise only works when its gains aren’t cashed in.

You can’t measure the benefit of exercise by merely looking at how much you sweat. The gap between what you gain and how much you avoid offsetting that gain is the figure that matters most.

The same goes for saving money.


Median family income adjusted for inflation was $29,000 in 1955. Today it’s just over $63,000, an all-time high. But half of Americans today have zero dollars saved for retirement.

How do you reconcile those figures?

The same as we do with obesity.

Financial wellbeing can’t be measured by merely looking at how much you earn. The gap between what you earn and how much you avoid offsetting those earnings is the figure that matters most.

And even though the majority of Americans earn more today than ever before, it might not feel that way because the gains have been offset with higher spending.

To generalize only a little: In the 1950s camping was an acceptable vacation. Hand-me-downs were acceptable clothes. A 983 square foot house was an acceptable size. Kids sharing a room was an acceptable arrangement. A tire swing was acceptable entertainment. Few of those things are acceptable baselines for most households today. The average new home now has more bathrooms than occupants.

The median household’s real wage gains over the last half-century have been spent. The household savings rate fell by 30% during a period when median real income rose 40%.

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Source: Federal Reserve, Bureau of Labor Statistics.

You can’t blame people for this. Spending more when your income rises is as tempting as eating more after you exercise. It feels earned and justified. This is doubly true for spending because people’s lifestyle expectations are driven by their peers. When everyone spends more, you feel entitled to spend more.

But all savings relies on the ability to receive an extra dollar and say, “I could spend this, and spending is awesome, but I’m not going to.” It’s the same as turning down a big meal after exercising. And it’s just as hard.

It might seem obvious that savings is your ability to reject what you could spend. But the majority of financial goals are about earning more – better investment returns and a higher-paying career. There’s nothing wrong with that. Earning more is wonderful, just like exercise. We just shouldn’t lose sight of the fact that earning more will do little for building wealth if every extra dollar is offset by a dollar of new spending.

The world is filled with the financial equivalent of athletes who finish every workout with four Big Macs. Wealth, at every income level, has less to do with your gains and more to do with your ability to leave gains alone without cashing them in.


Three points stick out here.

Learning to contently live with less has the same effect as growing your income, but it’s often easier and more in your control. This is an opportunity for financial advisors to add value, though it has more to do with psychology than finance.

Money is often a negative art. It has a lot to do with the actions you don’t take and things you avoid.

Everything has a price, and prices aren’t always clear. The price of exercise isn’t just the workout; it’s avoiding the post-workout appetite. Same in finance. The price of building wealth isn’t just the trouble of earning money; it’s avoiding the post-earnings urge to spend what you’ve accumulated.


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