Are You a Victim of Parkinson’s Law of Money?

You may be familiar with Parkinson’s Law. It’s usually framed in terms of work, rather than money, as it originally was by its author, Cyril Northcote Parkinson. The ‘law’ was simply an observation that Parkinson made in the first sentence of an essay published in The Economist in 1955 and later expanded on in a book titled Parkinson’s Law: Or The Pursuit Of Progress.

“Work expands so as to fill the time available for its completion.”

We are all, no doubt, familiar with that concept and have probably been susceptible to it on a regular basis unless we’ve found proactive ways to compensate for it. The way Parkinson’s law is frequently applied to money and wealth accumulation, however, is via a similar concept: expenses always rise to match income. Or, put more simply:

“The more we make, the less we keep.”

The law suggests that, no matter how much our income increases, we have a natural tendency to spend the entire amount (and often, in a world of easy credit options, somewhat more) each month. Our expenses increase in proportion to our earnings, and with each new pay rise, we live a little better, often stretching to live just a little beyond our means, whatever those means are.

Stretching beyond your means on a low income might mean going into a small amount of debt, but on a higher income, especially when it comes to things like home financing, it might mean going into a much bigger amount of debt.

By now you’ll have spotted that Parkinson’s law is not a law at all. But it is a really strong tendency that affects many (though by no means all) people as their income increases.

There are reasons why our expenses increase as we get older and more secure in our careers, especially if we choose to raise a family. But, single or coupled, child-free or the parent of a significant number of kids, it can happen to anyone. It’s the reason why so many high income people still live paycheck to paycheck and comes down to a little thing called lifestyle inflation, which basically means as our income increases we (reasonably enough) choose and embrace a more expensive lifestyle.

So Can Parkinson’s Law Be Avoided?

Yes, it really can, and often is. In fact, depending on their money personality,  some people will avoid it naturally. These are the people who simply don’t value material things and status symbols as much as the rest of us. The people who are happy in their cozy starter home and don’t feel the need to impress with ever-bigger houses, ever-fancier cars and other status-driven purchases.

For many people, it’s not that easy. If you’re high-income and struggling financially, the key to turning your finances around may well be breaking Parkinson’s law, but you’ll need to do it intentionally.

The Simplest Way to Avoid Parkinson’s Law

If you’re high-income and spend a lot on what the budgeters among us call the “discretionary spending category,” there’s a simple way to avoid spending more than you earn.

Pretend you earn less.

Things that are simple aren’t always easy, and for most people living in a money-oriented, status-conscious society, this one really isn’t, but the best way to avoid spending everything you earn is to simply pretend you earn less. Pretend to others, pretend to yourself. Get into the mindset of someone who earns less.

It’s not easy, but hear me out.

It occurred to me recently that the time in my life that it was easiest to spend less was during the many years I lived in Spain. The culture is different there. People work to live, rather than living to work, and it’s just not a very status-driven society (at least not in the small villages I lived in – I’m sure big-city life is different). People didn’t really talk about money or even work, and unless you knew someone very well, you probably didn’t know much about their income or background or even what they did for a living.

You don’t have to pretend to be living in poverty if you’re not, but consider for a moment how you could live cheaper if you decided not to buy into the typical conspicuous consumption mindset that predominates in most parts of the USA.

Would anything bad really happen if you decided not to upgrade your car, house, or iPhone at every opportunity? If you decided to do a lot less shopping (or none at all for a while)? If you cut back on some of the more expensive things that you do, not because you enjoy them, but because it’s important to be seen to be doing them?

In the book The Millionaire Next Door the authors identified that one of the things those with a million dollars or more in net worth had in common was that they’d often been in their current home for a long period of time. And often, in not moving to fancier neighborhoods, they hadn’t felt the need to keep up with fancier people. Interestingly the problem of lifestyle inflation is actually linked to other people’s lifestyles, not necessarily your own dream lifestyle.

If you love being fancy, by all means, move to one of those neighborhoods. And if you hate where you live and can afford to move out, then move on out. But if you’re happy where you are? If the local schools and parks are safe for your kids and the neighbors are friendly? Remember that moving to an upscale neighborhood may not just cost you more in terms of your mortgage and property taxes. It may also make you feel pressured to put your kids in private schools and take champagne to your neighbors’ parties, even if you prefer the taste of beer.

If you’re on a high income, but seem to have little net worth, then take stock right now. Before you become a victim of Parkinson’s Law of money, take a long hard look at your values and what you want out of life. There may be a way to avoid the ‘law’ and have a happier, more relaxed life as well.

Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen