32–Lever #3: Spending (Part One—Consume Less)
Spend less than you earn—everything else depends on it
In a previous article, we discussed money as both a tool and a gift (see Article #3: Stating the Obvious). We also learned that the Bible doesn’t give us a specific dollar amount to spend, save, or give, but it does give us principles, starting with stewardship (see Article #5: What’s a Steward?).
This next series of articles is about spending. One of the main things we can do with money is spend it. Spending can be fun and a good use of our money, but it is certainly not the only thing. Our “money pie” diagram reminds us that money “spent” can’t be used for anything else.
Spending is a natural part of life—mainly because we need to do it to live—so it is not unspiritual. It is actually a good part of God’s created order (1 Corinthians 10:31). God has given you money to enjoy and as a tool to use for yourself, your family (if you have one), and his good purposes. As James reminds us, “Every good gift and every perfect gift is from above, coming down from the Father of lights, with whom there is no variation or shadow due to change” (James 1:17, ESV).
But as with all good things, moderation is the key. So, it is essential to throttle your spending to ensure that it doesn’t exceed your income and that you leave room for things like saving, giving, and the unexpected.
That can be more difficult than it sounds. One reason is you’re “handicapped” from the start. If you read all the tax-related articles in the "Lever #2: Taxes" series, you now understand how your income is heavily taxed by the federal government and often your state, county, and city.
To illustrate, if we assume an average (effective) tax rate of 10% at the federal level, 5% at the state level, 6.2% for Social Security, and 1.45% for Medicare, you have a combined tax rate of 22.65%. That means to generate $1.00 of expendable income, you have to earn $1.29, calculated as:
That was the reason for the ”Lever #2: Taxes” series of articles—to help you keep more of your hard-earned money for other purposes. Whatever that number is for you, let’s call it “I” for “income.”
If you want to use “I” to buy something that costs $1.00 and you have to pay 7% sales tax (some local areas are higher; also, some expenses, like utilities, don’t carry a sales tax), you now need to generate $1.38:
It can be unsettling to see how quickly taxes erode your expendable income!
Let’s take this a little further. If, besides paying taxes, you also want to give 5% (10% would be better based on biblical principles) and save 6%, that's an additional 11%. This means that to buy that "thing" for $1.00 and give and save, you now need to generate $1.54:
That number must be higher if you want to give and save more than 11%. For example, if you want to give 10% as we suggested and save 12%, a total of 22%, you'll need $1.87:
You may now see that the higher your income, the more you’ll need to generate the next $1.00 to spend. Each additional dollar costs more as you move into higher federal marginal tax brackets. For instance, if you exceed the 22% bracket and reach the 24% bracket, each additional dollar spent (after all deductions and saving goals) requires earning $2.30. At the top bracket (37%), the cost rises to $2.86 per spendable dollar.
In case you’re interested, the table below shows how much “I” you need to spend the next dollar at different marginal tax rates and different levels of sales tax, giving, and saving.
Most of you will be in the 12%, 22%, 24%, or perhaps the 32% marginal tax bracket. As additional context, here are the 2025 income ranges for those brackets:
10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).
12% for incomes over $11,925 ($23,850 for married couples filing jointly).
22% for incomes over $48,475 ($96,950 for married couples filing jointly).
24% for incomes over $103,350 ($206,700 for married couples filing jointly).
32% for incomes over $197,300 ($394,600 for married couples filing jointly).
35% for incomes over $250,525 ($501,050 for married couples filing jointly).
The table clearly illustrates why minimizing your tax liability through careful tax planning and maximizing tax-efficient savings and giving strategies are vital aspects of wise stewardship.
Here’s an example using a salary number and some different assumptions. Let’s say you have a bi-weekly salary or wages of $4,000, payroll taxes of 7.65%, federal income tax (average) of 10%, state tax of 5%, savings rate of 6%, and giving of 10%. In that case, your biweekly “I” equals:
That example shows us that, based on our (somewhat higher) assumptions for taxes, savings, and giving, you need $4,000 of “I” to have $2,454 for spending. You may find those numbers a little discouraging. Take heart; you have some control over “I.” It will be less if you reduce your saving or giving amounts. You may also reduce it by lowering your average (effective) tax rate. The whole point is to be in a place to save and give, even if you must keep consumption in check.
I’ve done these calculations for you in the hope it will help you put consumption in perspective and enable you to see why being a wise steward is essential, especially if you want to save and give in addition to covering your living expenses, perhaps with a bit of “fun money” to spare.
Just as taxes reduce total wealth over your lifetime, consumption and the spending to support it are also reduced. Let's bring back our financial life equation (FLE):
To remind you, the simple description is: Future Wealth (Wt+n) is current Wealth (Wt) plus the sum of your income over the next n years (∑It+n) minus the sum of your taxes over the next n years (∑Tt+n) minus the sum of all your giving over ten next n years (∑Gt+n) minus the sum of your expenses (spending) over the next n years (∑Et+n) plus the sum of your interest earned over the next n years (∑IEt+n) minus the sum of your net interest expense over the next N years (∑IPt+n).
We are focused on the “minus sum of all consumption” (— ∑Ct+i) component. We want to minimize that number while maintaining a reasonable standard of living.
Consumption drives spending; if you want to consume something, you usually have to spend money on it. Since "C" is a negative in the FLE (technically, it’s called a “subtrahend”), you want your total spending to be as low as reasonably possible over your lifetime. Assuming the other negatives (subtrahends) are managed well, your net worth could be higher. All the more so if the positives (income and interest earned) remain positive and perhaps grow during most of your lifetime.
Okay, now that you know how to think about your “I” amount, you have to decide how you will spend it. Most people immediately think of their bills, and rightly so; you must pay them first. If you don’t pay the electric bill, your apartment will be dark (unless you light some candles). But the challenge is more significant than that. Your bills are determined, to a large extent, by what kind of lifestyle you choose.
Beyond taxes, saving, and giving, your lifestyle choices determine how much "I" you consume. Whatever it is, we will call that amount "E" for "expenses." And remember, due to taxes alone and using a 10% average federal rate, for every $1.00 of “I,” you need to earn $1.29. And with that, I’m going to introduce you to another formula. You may expect another complex, sophisticated formula (sorry, I told you there'd be math), but I promise—this one is the simplest of mathematical expressions:
I > E
This simple formula states that your income ("I") exceeds your living expenses ("E") for the rest of your life. As you can see, this formula isn't magic; it's just common sense. If I < E, you will probably be living a debt-funded lifestyle. If I > E, you should be able to pay your taxes, save and give, and spend what you need to support your lifestyle (your essential needs for food, clothing, and shelter at a minimum), perhaps with a surplus for some discretionary spending (a/k/a spending on stuff or fun).
Since we have assumed that taxes are a given and that giving and saving might come off the top, “E” is the combination of discretionary and non-discretionary living expenses based on your consumption, which, as we’ve discussed, is at least partially determined by your lifestyle decisions. If E < I, you’re going to have problems.
Levers #1 and #2—our income and taxes—certainly matter, but I > E is probably the most important formula I will show you. Almost everything we want to do regarding living, giving, saving, and investing depends on spending less than we earn.
Think back to the "Where Are You" article. Another way of describing your current condition could be: "I spend more than I earn,” or "I spend less than I earn." Realizing which statement applies to you is a great way to become more intentional about your lifestyle spending and cash flow.
When I > E, you have what economists call "margin." It means you have some flexibility regarding what you do with any dollars of I that are > E. You can use any dollar not spent for other purposes, including additional consumption. If you save and invest it, that extra dollar may have a future value (FV) of more than a dollar. A dollar saved for the future has the following future value (FV) in terms of how it impacts net worth:
FV = $1 plus interest minus inflation minus taxes
Hopefully, the compound interest earned will be greater in the future than (inflation + taxes), though that is certainly not guaranteed. If it is, the FV of that dollar will be greater than its present value (PV), which is one dollar.
One of Western culture's great deceptions is that a single dollar of extra spending will materially improve our happiness after our basic needs are met. It might, maybe a little, but once we learn to separate our joy and contentment from more income, leading to greater and greater consumption (above a reasonable standard of living for our family size and where we live), life becomes pretty simple, enjoyable, and fulfilling.
Of course, some spending may be influenced by circumstances beyond our control, but most is driven mainly by lifestyle decisions. Our lifestyle choices (i.e., how much to spend on food, housing, clothing, transportation, and more discretionary items such as entertainment and recreation) tend to determine how much we will spend in total. We'll discuss that further in the next couple of articles.
For Reflection: How much control do you have over your consumption and spending? If you believe the answer is “not much,” you may not realize how much of your spending really is in your control. We must all decide how to meet our most basic needs (food, clothing, shelter, and transportation) and other necessities in the modern world. But beyond that, much of our consumption and spending is discretionary. Do you think carefully about such things before you let go of your hard-earned “I”? Do you see the link between spending and your ability to give and save? How do you think God wants you to think about them based on what He tells us in His Word?
Verse: “Moreover, it is required of stewards that they be found faithful” (1 Corinthians 4:2, ESV).