It's once again fall in New England, and that means one great thing to many of us - football is back! As a kid, football was the only sport that I loved to play. As an adult, one of my greatest joys of fatherhood is coaching my two sons’ Flag Football teams. While enjoying the games this past weekend, it occurred to me that football can teach us a lot about personal finance.
Football, like any team sport, has two sides to the game. Offense and defense. Offense scores points and defense prevents the other team from scoring points. The legendary Alabama football coach Bear Bryant put it best when he said "Offense sells tickets, but defense wins championships."
So what does this have to do with personal finance? Think about your ability to earn income as offense. Your income gets your attention....it "sells tickets". And think about your spending as defense. Spending less is like allowing fewer points scored against you in a game. And just like in football, how well you play defense will ultimately determine the outcome. This concept of offense and defense applied to money was a central theme in the outstanding 1996 book "The Millionaire Next Door." If you haven't read it yet, I highly recommend it.
Defense (spending) is more powerful especially in personal finance because of taxes. Simply put, a dollar unspent on an expense, is worth more than a dollar of income. After taxes, one dollar of earned income turns into (for example) 70 cents. Varying with your income tax bracket of course. And by saving instead of spending, you allow that unspent dollar to grow.
In my experience, individuals tend to be very good on offense. They focus much of their time and energy on earning more money. They get degrees and advanced degrees. They work hard, they switch jobs, they lobby for that promotion. But sometimes they spend far less time on defense, by reducing or moderating their expenses. This often comes in the form of "lifestyle creep" where a person's standard of living rises with their income. Things that were once unaffordable, suddenly become necessities. The end result can sometimes be no additional progress to your financial goals, even after that promotion.
My advice to all of my clients is the same. Knowledge is the first step. Know exactly what you are spending every month. At Breakwater we have tools to help you on both offense and defense. And we are here to help serve as your co-pilot when it comes to understanding and managing your expenses throughout your life.
Breakwater Financial, LLC is a registered investment advisor. The content of this blog post is for informational and educational purposes only and is not to be considered investment advice. If you have any questions regarding this Blog Post, please contact us.