Why is it that cutting down on an expense, or getting a pay rise, doesn’t lead to an increase in the bank balance?
A man might give up his $100 a week smoking habit to save money. He should have an extra $100 in the bank at the end of each week. It turns out that he continues to spend all of his pay every week. Why might this be so?
One can shop around to get the best value for money. One can cut this expense and that expense. Every individual expense may be justifiable. Every individual expense may add to quality of life.
If there is no limit on total expenditure each week, then expenses will rise to consume the entire pay cheque. One can cut an expense by $100 and easily spend it on other things. Wants are limited but resources are limited.
The moral of the story is that you must put that $100 a week aside for investment so that you do not spend it on other things. In other words, cut the amount you can spend by $100 per week.
It is vital that there be a limit on total expenditure each day, each week, each month and each year. One must set a limit and learn to be content with that limit. Without the limit one can too easily continue spending until there is no more money remaining. This probably explains why 70% of people who win the lottery are broke within 10 years. They just keep spending.
A budget is meaningless without limits on total expenditure.