In Unscripted, MJ DeMarco notes that the key to staying wealthy is increasing your expenses at a rate disproportionate to your income.

If you're earning $5,000 a month after taxes with monthly lifestyle (non-business) expenses of $2,000, once you're earning $15,000 a month after taxes, you shouldn't increase lifestyle expenses to $6,000/month. A slight expansion to $3,000/month would be safer [1].

You should definitely reward yourself, but also think long term. Can you maintain your lifestyle for a couple of years if your income suddenly dropped for an extended period, without incurring debt?

If you have to think about whether you'll be able to afford something, you probably can't afford it.

Spending more also carries the burden of feeling like you have to use what you bought so it doesn't feel like a waste. I fall into this trap a lot with apps and electronics. I subscribe to all kinds of SaaS products, buy more gadgets than I need, use them for a few days, then abandon them. Months later, I feel pressured to use them just because I bought them, even if doing so isn't the most effective way to get things done.

Once I'm making $15,000/month in after-tax income, it will be tough not to get excited about the shiny new toys I could buy, trips I could make, and hobbies I could pursue. I'd imagine vistas far beyond my current reach. A guitar and drums would be nice. So would traveling and playing video games on the highest settings.

Beyond cost, though, these would be a drain on my time. I wouldn't be at the stage where I can stop working on business because I'm going for more than $15k/month. $25k/month would be more comfortable. At that level, I might reduce working hours, increase leisure time, and look at other projects.

What's your number?

You May Have to Define a Stopping Point for Reduced Spending

There's a tradeoff, though.

It could take longer than you expected to get to your income and net worth goals. You may feel you're putting things off needlessly. If you're 35 and after 10 years, you haven't reached your goals, should you expand your lifestyle to enjoy life more, at the risk of slowing progress towards them?

What if—and this is so hypothetical—precision medicine and diagnostics lets us live healthy to 120, with full capability to enjoy the same activities at 105 as you would at 25? If you don't have a set date to achieve your target net worth, you can enjoy an expanded lifestyle now, knowing you'll probably get to your target at some point.

Or this might all be overthinking it. Maybe you should make a wad of cash first, then decide what to do with it. But how much is a "wad"?

It depends on your risk tolerance. If you have an appetite for being scrappy, you might not mind living extravagantly; if you lose it all, invoke scrappy mode and claw your way back to profits.

Many wealthy people seem to lack this scrappy spirit, though it might just be their outward appearance. If they lost everything, would they be able to execute the same behaviors that got them to where they were, assuming they didn't just inherit their wealth?

It's hard to imagine some famous people, who look great in suits and lavish homes, losing it all and battling back from zero. But that could just be a matter of getting back in shape, much like some athletes have come back to dominate their sport after a slump.

Self-made millionaires who lost their millions wouldn't start from exactly zero because they'd have skills, mindsets, and connections who can help them:

• They could borrow money from a friend or wealthy family member who may trust in their ability to grow new income streams.
• They'd have the mindset of owning the means of production rather than just managing them. A lifelong employee would have aspirations to become a manager and climb the corporate ladder, but someone who’s achieved wealth through their own businesses would start out as the owner and hire people who want to climb the ladder they created.
• They'd have skills like knowing how to choose high-margin products, marketing and sales, and negotiating.

If you enjoy building income streams, that's a source of flow that can sustain you through the rough ride of rebuilding. To be conservative, assume you might not feel like rebuilding, so it's better to inflate your lifestyle by only a fraction of the amount your income increases and keep your money.

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[1] This article is not intended to provide financial advice. It is only for educational and illustrative purposes.

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