Spending strategies - Limiting Discretionary Spending with Multiple Income Streams

The two most common strategies I hear related to personal finance are to: 1. Make more money or 2. Regulate your spending (usually by cutting down on expenses). Today, we're going to take a look at one of the strategies I use that blends these two concepts together and creates a system that both finances and limits my spending on certain goods. Before we get started, it's important to know that this strategy requires that you have at least two streams of income, and that you are able to pay recurring living expenses without issue.

Step 1: Have a secondary source of income

In the modern world, many people will have a side hustle, second job, or other means of additional income to supplement their full-time job. Examples of these could be: interest on a bank account, Investments in real estate, investments in index funds, a side business for wedding photography, or part time job on the weekends.

Step 2: Know where you want to cut back

Many budgeting strategies will simply tell you to spend less money. While that is truly a good strategy at face value, many people will not be able to simply spend less money without actively engaging themselves and picking apart their spending habits. It's generally recommended that you divide your spending into “wants” and “needs”. In other words, split your spending between required spending and luxury spending. Once you're able to split your required and luxury expenses, you can begin to pick out which luxury expenses can be cut down on (or allowed).

Step 3: Only use your secondary stream of income on luxuries

I'll let you know what expenses are considered luxuries, you can limit them by setting a maximum amount on the spending based on your other income streams. Doing this is different than just sitting aside funds from your regular job because it forces you to save any money from your primary income stream that isn't going towards your living expenses. For example, let's say someone is taking home roughly $3,000 a month after taxes, and drives for Uber on the weekends for a net income (after gas and other expenses) of $200 per month. Using this strategy, this person would take the $3,000 a month and use it to pay off all their necessary living expenses including rent and groceries, and either save or invest the rest. When that money is put away they would take the extra $200 they earned from their second stream of income and use it for discretionary spending as they please (which could include investing the money as well).

The reason why I'm a big fan of this strategy is because it forces me to grow my streams of income in order to increase discretionary spending while at the same time forcing me to save a lot of money from my full-time job. This also works quite well for saving because currently my secondary streams of income Are nowhere near large enough to cover all the things, I might want to buy in a given week, so I'm forced to spend within the limits of imposed upon myself.

Eventually this strategy will evolve into all my living expenses being covered by one stream of income, and the remaining streams being used to cover some luxury purchases and invest in additional streams of income. What do you think of the strategy? I challenge you to try it out for a month or two and see how your spending changes, and how much you end up saving.