Mike Michalowicz explains why earning more money rarely fixes financial problems. He calls it Parkinson's Law: spending expands to match income. Amy's life shows the pattern—college meant no house and few vacations, now she owns a home and travels constantly.
Many people believe making more money is the solution to financial problems. How does the money habit challenge that belief?
You will never, never out earn your spending. It's just impossible. I don't know where you are today compared to where you were in college. I do know this about you, Amy. You have more money today than you did then.
Yes, thankfully.
Thankfully. But your spending has also increased. You didn't own a home when you were in college, you own a home now. You didn't vacation much or at all when you were in college. You do now. That's the natural tendency. But most of us believe I'm just one new payday away from finally being financially free. But what happens when that money does come? We instantly find ways to spend it. It's a natural tendency. It's rooted in this concept called Parkinson's Law. So, a quick history lesson. Parkinson's, a theorist in the 1950s, studies human behavior and discovers that as a resource expands its availability. He does research around time, mostly. The more time we have, the more time we spend. So the more resource we have, the more we consume of it. If you and I were discussing something and we're going to complete a project and we say we'll get done by next Friday, we'll probably get done by next Friday. If you and I discuss the same project, same parameters, but say we got to get done by tonight, we'll find a way to get done tonight.
