Parkinson’s Law, (not to be confused with Parkinson’s disease), is a law that states "as the supply of a resource increases, so does the demand of that same resource". I’m going to change that a little and add just a few more words to come up the definition we will be using throughout this article.

Parkinson’s Law (as it pertains to this article): As income rises, expenses rise in greater proportion.

What does that mean in plain English? The more dough you get, the more you’ll spend, and the worse off you will be. You’ll probably end up poorer than before. If you’ve got more cash coming in, how can I be poorer you ask?

Let’s say Joe Blow made $35,000 a year. Due to his hard work, he is now earning $50,000 a year. A substantial increase in cash flow. What does he do?

He sells his Honda Civic and buys a brand new Acura. Now he has monthly payments. His insurance is probably higher now that he has a nicer car. He also probably has to put premium gas in his car instead of unleaded in his Civic.

He goes out more often, upping his gas bill even higher. His lifestyle starts to change. He eats at trendy restaurants, goes to trendy bars, drops wads of cash on tips and alcohol.

Whips out his credit card to buy that laptop he always wanted and that big screen TV as well.

Then he goes to his ATM and checks the balance on his account. It seems low. He’s confused. He just got a pay raise. How can it be that low?

He gets his credit card statement in the mail. It has increased by 50%. He always seems to be short on cash. What's going on?

Joe Blow succumbed to Parkinson’s law.

And without any statistics to back me up, I can safely say that a vast majority of Americans succumb to Parkinson’s law everyday. I’m sure every reader here knows somebody who is a perfect example of Joe Blow. And the sad thing is that people who succumb to Parkinson’s law are worse off, not only financially, but mentally and emotionally as well.

It’s time to violate Parkinson’s law. How can we do that? Here are a couple of ways in no particular order.

Pay Yourself First

Frankly speaking, you should be doing this regardless of whether you have had an increase in income or not. Let’s say you earn $3,000 a month. The rule of thumb is to pay yourself 10% first, which comes out to $300. If your income rises to $4,000 a month, try paying yourself more than the 10%. Why? Because chances are, your expenses will rise proportionality greater than your income, so try to save a little more to offset that. Try saving (15%) $600 a month.

What this will do is build you a nice cushion in your savings account and it will force you to only deal with what you have left in your checking account. When you have only X amount of dollars to work with, you WILL figure out a way to work with it.

In order to do this, I suggest you sign up for a bank that will automatically deduct a certain amount from your checking account each month. That way, you set it and forget it. You won’t even know it’s gone. Then one day, you can log in to your savings account and pat yourself on the back for all the money you’ve saved.

Be Thankful

Another way to violate Parkinson’s law is to be thankful for what you have. By being thankful for what you have, you’ll feel abundant and won’t be so eager to spend because you already have what you want. By doing so, you won’t fall into the trap of “I’ll be happy when I get that ________(fill in the blank: car, computer, clothes, gadget, etc).

Yes, it’s cliché, but have you really sat down and realized how much you have? You have the eyes to read this article, a computer with Internet access to get to it, schooling to read and understand it, etc. You’re better off than you give yourself credit for.

Think of ALL the Hidden Costs Associated With Your Future Purchases

Like the example of the new car, try to think of ALL the hidden costs associated with any purchase you may make with your newfound income. You may not think of any at first, but just stay with the question a little longer and you will realize that it will cost you more than you thought.

Remind Yourself of Your Toys

Remember when you were young and you were begging your parents for that hot new toy on the market and that if they bought it for you, you wouldn’t ask for anything else? You nagged and nagged and nagged until they finally caved and bought you the toy. What happened? You were overjoyed and played with it for a week. After the week, you tossed it in the back of your closet with your other previous "must have" toys.

The point I want to make is that you may want to buy something you really want with your increased income, but have the foresight that it may and probably will, only bring you momentary pleasure.

Cash Out Your Spending Money for the Month

I’m assuming you track all your expenses for the month. If not, then please set up a simple budget in Excel. List all your expenses for the month. Then go to the ATM and cash out all you will need for the month to cover lunch, dinner, weekend, entertainment expenses, etc. Then, only use the cash you have to pay those expenses. Don’t cash out money for bills. Keep that separate, and if possible automate the payment of your bills online to make it easier on yourself.

Here’s another quick budgeting tip. When you list your expenses in Column A, list in the next column whether the expense is a Necessity or Want. You can further violate Parkinson’s law by reducing or eliminating any expenses that are categorized as “Want”.

Ask Yourself: Do I Really Need This?

Before your purchase something, ask yourself: “Do I Really Need This?” If so, then why? If you can list 7 solid reasons why, then wait one week and then if you still decide you need it, then go ahead and buy it.

We often want things, but the results will most likely be just like the toys we always wanted when we were young.

Don’t Compare Yourself With Others

This is also known as “Don’t try to keep up with the neighbors”. You may feel the urge to go buy that new car or computer, or a new wardrobe to keep up with your friends who do the same and appear financially successful, but keep in mind that those friends you are trying to “keep up” with are most likely succumbing to Parkinson’s law. You, however are smarter than that.

It’s OK to Splurge (a little)

I don’t want to give off the impression that you absolutely cannot buy the things you want when you get more cash. By all means, reward yourself but be aware of Parkinson’s law, pay yourself first, and apply the tips listed here before you do so.

Self Control and Discipline

By violating Parkinson’s law, you automatically build self control and discipline, which are two very valuable investments on your part. Not many people have the self control and discipline to violate Parkinson’s law.

If you have read The Millionaire Next Door, you will find that one of the key reasons why many Americans have become millionaires is that they have become aware of Parkinson’s law and violated it.

Now, you can do so as well.

[tags]money, personal finance, success, wealth[/tags]