Parkinson's Second Law

Answer 1

Parkinson's Law, named for Cyril Northcote Parkinson, states that, ''Work expands so as to fill the time available for its completion.''. Of more concern in Personal Finance, however, is Parkinson's Second Law; ''expenditures rise to meet income''. I've seen it happen with clients over and over again. When reviewing financial statements of a client it's easy to track the increase of expenditures as they tie directly to increases in income.

If you find that you're strapped for cash, ask yourself if you are making more money than you were five years ago. Chances are that you probably have gotten an increase in pay. Now consider how your expenditures have risen since you got that last raise. Often you will find that you took on new bills or financial obligations at the time of a pay increase. If you need to free up more cash flow in your budget take a long hard look at these recently added items. You lived without them before you could afford them. If things are very tight perhaps you can't afford them any longer.

With rising gas prices fueling inflation it can be hard to make ends meet. Sometimes it is necessary to take a few steps back to make forward progress. Even if you just give up some items for a few months you may find that it frees up enough cash for you to get back on track. And if you're paying for things that you really don't need, all the better that you discover it now. After all, much of the increased spending I've seen that closely follows an increase in pay is of a competitive spending nature. In other words, people tend to rush out and buy the things they think they need in order to keep up with their friends and neighbors in some sort of materialistic spending race. Don't fall for that trap. To get ahead in the finance game you must spend less than you make. The more of a gap between the two, the better off you will find yourself.