Back in 2008, I had my first 6-figure year as an entrepreneur.
But I didn’t feel like I was making a lot of money.
Why?
Cause I fell into the trap of significantly increasing my spending as my income went up.
Which is not unusual…
I see it all the time.
In the years leading up to my first $100k year, I was one of those guys who was barely scraping by.
I made around $25,000 a few years before this.
And then about $35,000 the next year.
So going from $35k to making over $100k was a huge leap for me.
Hitting $100k was a real milestone.
I struggled to get there.
And put in a lot of hours to make that happen..
So it felt good to finally hit that goal.
But like I said it wasn’t all champagne and roses.
Cause I made the big mistake of spending a lot more money once I hit that number.
On the surface, this seems like it’s not a huge deal.
After all if I’m making more money, I should be able to spend more money.
If I wanna go to dinner and order the steak instead of settling for the chicken, I can do that.
And that’s true.
You can do that.
The problem comes when you “upgrade” everything in your life…
Better car…
Better apartment…
Better restaurants…
Better clothes…
It all adds up.
Soon your expenses catch up with your new income.
And you start to wonder how you’re making 3x what you made the year before, yet you don’t have any more money saved up.
This is pretty much what happened to me.
Luckily for me it only lasted a few months…
Cause I was smart enough to see what was going on.
So I quickly reversed course.
And got back to saving money.
Which ended up being really smart on my part.
Cause in 2009 I had one of my worst years ever.
I think I made like $5200 that year.
I had a bunch of high-ranking pages making me a few hundred bucks a day wiped out by Google.
So my income dried up.
So the money that I saved is what got me through the year.
And that’s an important point to understand.
Especially if you’re in the spot I was where you just started making good money.
It’s VERY easy to start buying a bunch of new things to celebrate your newfound money.
I see it happen everyday.
Going from a $1000 apartment with roomates to a $4000 apartment downtown.
Or going from a 2012 Honda to a souped up Porsche.
If you try to do all this at once…
You’re gonna end up like I did.
Wondering where all that newfound money went.
So my advice?
If your income shoots up quickly, keep your expenses relatively similar for a year or two.
Sure, you can splurge on a few things…
But overall your expenses should be in the same ballpark as they were before.
This way you can save a bunch of money.
And protect yourself if you have a bad year.
Once you have 2-3 good years at the new income level, then I’d say you’re safe to increase your spending.
Cause at that point, you’ve proven you can do it for more than just one year.
It wasn’t just a flash in the pan.
You actually know what you’re doing.
But until then…
I highly suggest not letting your expenses go up at the same rate as your income.
It’s a mistake almost every entrepreneur makes.
And it can be avoided.
That’s my 2 cents.
Enjoy your Tuesday,
– Justin
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