Ah little kids. So immeasurably priceless. Yet so insanely pricey.

They might be your heart walking around in someone else’s body, but they will cost you an arm and a leg. It’s not just the mountain of nappies, doctor’s visits, medicine, apparel, food, equipment and educational needs that come with new humans; it’s the corresponding big purchases many of us make at the same time – choosing to move into a bigger home, or buy a bigger car. All this – at a time when we’re probably feeling like we have the least capacity and margin to really excel in our day jobs.

The result: Not only is there the emotional stress that comes from daily having to navigate through life surrounded by small terrorists you had a hand in creating – but the added stress of trying to survive and stay sane long enough to provide for them for the next 20 years.

My own life and budget has got me thinking a lot about the subject of finances lately. The promise of ‘financial freedom’ is a bit of a pipe dream I think for the average person, me included. Most of the self-help financial literature overshoots by suggesting that it is possible and liberating for all of us to retire at age 30. I’m really happy for those who achieve this, but let’s get real, not many of us are about to retire any time soon. (Fortunately, I love my work too much to want to stop anyway.)

But that doesn’t negate the fact that we should still aim at what I call financial sanity. Especially in a world that is so financially insane.

But what is financial sanity? We’ve all seen lives and entire countries shipwrecked for lack of it, but what’s the alternative? For some years now I have been working on a formula, or an equation. This is where I have landed. I call it the Formula for Financial Sanity…

Earn more + spend less than you earn = stress less + give more + invest more

Let’s break it down…

Earn more.

Our income is not static. There are things we can do that push up our earnings. Things like getting a good education, and then getting further education or accreditation. Or diligently looking for work. Or finding a second job. Or starting your own business. Or making ourselves indispensable to our company. Or finding the convergence point of the world’s needs and my passions. Or investing.

Spend less than you earn.

This sounds so simple, but this is precisely where we come undone. In a culture where credit is handed out as liberally and pervasively as those Tiger wheel brochures at the traffic lights, we tend to accumulate more than we can cope with. The result is that we don’t live within our means.

In a book called ‘The Millionaire Next Door’, the point is made that the most wealthy people don’t look very wealthy because they have become so disciplined at living within their means. They spend far less than what they have. Many wealthy people earned far less than some higher-earners, but eventually accumulated far more assets, precisely because they spent relatively less.

Robert Kiyosaki in ‘Rich Kid, Smart Kid’ defines financial intelligence not as how much you make, but how much you keep and what you do with what you keep.

What happens when you earn more, and more importantly you spend less than you earn?

First benefit (of spending less than you earn): You’ll stress less.

When your outflow exceeds your inflow, the shortfall leads to your downfall.

Part of our downfall is the resulting emotional stress. The more month left at the end of your money, the more days of your life you spend stressing.

And few things erode your happiness and your relationships like stress. It’s not just our marriage – our kids pay a price too. Ellen Galinsky of the Families and Work Institute asked 1000 children: ‘If you were granted one wish about your parents, what would it be?’ The parents predicted the kids would say ‘spending more time with them’. They were wrong. The kids’ number one wish? That their parents be less tired and less stressed. Another study shows how the long-term psychological development of a child hinges in part on the stress-levels of their dads.

Second benefit: You can give more.

I am a big believer in the liberating power of generosity. Not only does it bless others and make me feel good, but it frees me from the tentacles of greed – giving money away is the surest sign that it is not money that has me, but me that has money.

Miserliness begets misery. If you achieve the elusive ‘financial freedom’ but then spend it all on your house, your assets and your family, you’re not free. You’re enslaved to greed.

On the other hand, generosity begets joy. On his recent sixth birthday, my boy Fynn asked for cash from all of his friends rather than presents. The result was that his wallet was loaded. I then spoke to him about the thrill of giving – and that the best time to learn to give is while he’s still young. He set aside one of his notes to give at church the next day. We then went to the Lego shop. (As a side note: this is not a usual occurrence. In fact, Fynn has never gone to any shop with his own wallet before.) He was beyond excited. For weeks, he’d paged through a Lego brochure he picked up somewhere – scheming which one he’d be able to buy. In the parking lot, we walked past a poor man selling really beat-up garden plants.

‘No thanks!’ I said. But Fynn tugged at my pants, and held up his wallet.

‘Daddy, let me buy those plants from that man.’ I didn’t stop him. And so he paid the man very generously for all his dying flowers. When I asked him what made him do it, he said ‘Dad, you told me about how good it feels to give, and as I walked past him, my heart exploded with wanting to help him. My heart feels so happy now.’ When Fynn got home later, it wasn’t the great Lego set he’d just bought that he ran up to Julie to tell her about – it was those dodgy flowers. That’s true financial freedom.

Third benefit: You can invest more.

Savings and investments are only possible when we actually have money left over to invest or save. Think of some of your income as seed and some as bread. By all means, eat the bread, but don’t eat the seed. Rather sow it into a long-term savings account, or some share. As Einstein said, ‘The way to wealth is to get compound interest working for you, not against you.’ Investing means that we’re no longer working for our money, rather our money is finally working for us.

How about you?

I know that much more could be said, but when a model becomes too complex, it is no longer memorable, helpful or transferable. This formula tries to get to the bedrock irreducibles of money management.

Earn more + spend less than you earn = stress less + give more + invest more

Where is your financial life in violation of this? What changes can be made? If you’re married, consider chatting with your spouse about this. Could you perhaps agree to re-align your financial choices?

Parents, cast a vision of financial sanity for your kids.

Show them the formula. Then tell them that you want them to live a life that is not stressed out by constant financial constraints. Tell them that you would love to see them generous, and they will be so much happier for it. Tell them that you would love to see their money one day working for them. Then tell them that there are two main ways to make that possible: First, they must do what they can to earn more. Second, they should discipline themselves to spend less than they earn.

Then tell them that this formula is like a law of nature, much like the law of gravity. If you abide by gravity, you can do awesome things. But if you try break it, you only end up breaking yourself.

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