Making money is habit-forming.

That’s a good thing – because it makes it easier to keep working. But it’s a bad thing too – because it makes it harder to stop when you want to stop.

What compounds the problem is that most people increase the cost of their lifestyles as quickly as they increase their income. Then they feel compelled to keep increasing their money-making goals. It gets to a point where even if they want to retire – and feel they could break free of their addiction to working – they don’t see how they can do so, because their cost of living is so astronomically high.

The trick to staying out of the escalating-lifestyle snare is to pick a comfortable spending limit and stick with it. By comfortable, I mean one that gives you a full, satisfying lifestyle – one in which all your needs are met by the income you have.

Let’s say, for example, that you are in the process of dramatically increasing your income. This year, you earn $100,000. Next year, $200,000. The year after that, $400,000. And then you continue to earn $400,000 a year every year thereafter.

By learning to live comfortably on, say, $150,000 a year – and sticking to it when you are making $300,000 and $400,000 – you would end up investing a lot of money “in yourself” every year.

Assuming that your total tax bill (including federal, state, local, and other taxes) is 35% (it shouldn’t be more than that if you know your deductions and use corporate structures wisely), the arithmetic would look something like this:

Yearly Income: $400,000

Total Taxes: $140,000

Comfortable Spending Limit: $150,000

Balance for Investing: $110,000

By investing in a combination of real estate (where, because of the leveraging power of mortgages, you could see ROIs in the 20% to 25% range), stocks (figure 10% ROI), bonds (figure 6% before taxes), and a side business (figure at least 25% for the first 10 years), you can easily average 15% to 20% on your total investments. That means you can get wealthy pretty quickly by saving $110,000 a year.

The trick is to maintain that spending limit.

You wouldn’t move into a $5 million house. You wouldn’t buy a $150,000 Porsche. You wouldn’t take an $80,000 vacation. You’d have a blast – a $150,000 blast – but that would be it.

If you don’t make that promise and do slip into the common path of excessive consumption, you will surely have trouble retiring – even after you’ve exceeded, by far, the financial goals you had set for yourself.

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]

Mark Morgan Ford

Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Wealth Builders Club. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.