We have an almost automatic tendency to increase our standard of living the moment our income increases. If you’re like most people, when your pay increases by another $500 a month, the first thing you decide is what additional $500-per-month thing you can now afford to enjoy, which is the same as deciding what additional $500-per-month expense you now wish to take on.
Every time that happens, your financial situation doesn’t really change, even as you climb through tax brackets. Ephemeral details of your life — what you are wearing, where you are eating, the sleekness of your furniture — do change, but the feeling of your financial situation doesn’t, and it is this feeling that determines whether your financial situation feels stretched, or ample.
That ample feeling comes, al least partly, from space. Ideally there would be space between what you earn and the cost of your lifestyle. If you have space, the thought of an unexpected expense doesn’t have the power to worry you, because normal life (for you) costs less than you have to spend on it, and so incidentals don’t put you in the red. On most of the occasions where life costs more than you expect, it still costs less than you have.
Space is an interesting asset in that it doesn’t actually cost money. It only requires that you leave a portion unspent. The returns on this zero-net-cost investment are considerable. It can make the difference between carrying a daily feeling of abundance and carrying a daily feeling of not-enough.