Grow the Gap: Guard the Gap

If I could boil my entire personal finance ideology into 6 words it would be this: Grow the Gap. Guard the Gap. If I could share a message with families struggling in poverty I would tell them: Grow the Gap. Guard the Gap. If I could share with young adults in college I would say: Grow the Gap. Guard the Gap. If I had a few minutes to talk with middle income and high earners, I would advise them: Grow the Gap. Guard the Gap. If you want to know how to went from from $50,000 in debt to over $500,000 net worth in 15 year on medium sized income: We grew the gap and guarded the gap.

how to create financial freedom with lower expenses

These 6 words are the path to creating more financial freedom.

What is the Gap?

We aren’t talking about overpriced clothing here. The Gap is the space between our expenses and our income.

If we earn $4000 a month and spend $3800, we have a $200 gap. If we earn $1700 and spend $800, we have a $900 gap. If we earn $3500 a month but spend $3900, we have a -$400 gap. (Negative gaps are bad, real bad)

Depending on where you are in life there are different areas you will need to focus on. Sometimes we are tempted to major in the minors. Instead, let’s pick the area that will move the needle the most. Instead of looking at what we can’t change, focus on the areas we can change.

Grow the Gap

How do we go about growing the gap between our income and our expenses?

Reduce our expenses

There are 3 basic kinds of expenses we can look at.

1. Fixed Expenses: These are things that we get a bill for each month. Our cell phone, car insurance or rent. One by one we can look at each cost and figure out if we can cut or reduce the expense. Because these expenses happen over and over, one change could help us grow the gap on an ongoing basis.

When I was in college, and newly married, we lived in married student housing. It was affordable and a good option. But then I realized that we could move into a travel trailer and save about $150 a month. It was a big change for a small cost savings. But it helped us grow our gap by lowering our cost, and we funneled that savings into paying off our credit card debt.

We still look for ways to cut our fixed expenses: from renegotiating our gym membership (we saved $20 a month!) to testing out if I can live without a cell phone! (I’m 2 week sans cell phone so far! I’ll decide in another 2 weeks if I can do this permanently.)

2. Flexible Expenses: These are things like gas for our car, food, and entertainment. Over time we can learn to reduce these costs. We can learn to cook from scratch (how we cut our food bill in half!) We can adjust to biking to work. We can find new ways to have fun with our friends that aren’t so expensive. Tackle them one at a time to slowly grow your gap.

3. Debt Repayment: We have two options with this. Pay it off, or get rid of it. If you have a car loan, you can work to quickly pay it off or you can sell the car and buy a car you can actually afford (aka pay cash for). Car payments, student loans, medical bills, credit cards, mortgages. As you pay these off, it will grow the gap between your expenses and income. How much more gap would you have without a car payment, credit card debt, or mortgage?

Increase our Income

1. Ask for or earn a raise:Do great work, consistently. If you can ask for a raise, ask. If you have to earn it through performance reviews, try to earn it. If you have grown your skill and ability, and you can’t get a raise, you can look at other companies who would value your work.

For low or high earners, switching companies can be a fast way to grow your gap. I once switched from a job earning $9 (with little career growth options) to one starting with a $12 base plus commission. I was then promoted within 8 months. In less than a year my hourly income shot up from $9 to $16-$20 an hour range.

2. Earn extra income: You might be able to work extra hours for extra pay if you are hourly. Or you could start a side hustle (side job). Especially if your income is low, finding ways to increase it is key. If you make $9 a hour, adding a house cleaning gig where you earn $12 an hour will be a huge boost.

Guard the Gap

I don’t care if your yearly income is $25,000 or $150,000. Guarding the gap is hard. It goes against everything in our culture. We will bump up against all sorts of internal struggles, and external pressure. That extra cash in our pocket has a way of catching fire and burning a hole right through.

Growing the Gap takes hustle and hard work.

Guarding the Gap takes emotional strength and vision.

But you will never have financial freedom without it.

Don’t buy everything you can afford.

So now you can “afford” a nicer car, better vacations, eating out, a bigger home, whatever. Don’t buy everything you can afford. Just don’t. (this is a full post, coming soon!)

Pick a few things that are your deepest values, and spend a little cash there. My money mentoring program starts with some life planning exercises, because we have to figure out what those “most important” things are, so we can create a plan for affording them. For some it’s being able to live in a certain area, some it’s a vacation cabin,  or for others it’s doing work they are really excited about, or seeing the world, and for Mr. Montana it was a lovely classic car. For me, it was traveling/camping with our kids. Some people just want to have more time. Time for their kids, families, friends, hobby’s, or vacations. If they could carbon copy their life, except with 20 hours of work a week instead of 50, everything would be 1000x better. Maybe paying off all their debt and home could do that for them. So in that case, spend the cash to pay down your debt.

With everything else, be crazy frugal.  Guard the Gap.

Guarding the Gap is the ticket to your financial freedom. Don’t trade your freedom away.

After we adopted 3 kids, it seemed like everyone was asking “So when are you moving into a bigger house?” Then we found out we were expecting a baby! So it seemed like at least once a week people were demanding, “You are going to be moving SOON, right?”

See, our little family of 7 lives in a cute and comfortable 1650 sq ft house. It has 4 bedrooms and 2 bathrooms. It has a very nice fenced yard, complete with 2 full grown apple trees, patio, garden boxes, swing set, trampoline, raspberry  and strawberry patches, a few blueberry bushes, an herb garden and a little duck yard/house. It’s not huge or fancy. But we have remodeled every space, and it’s just how we like it.

When we looked into the cost of finding a place just as nice but bigger, it would have been another $100,000-$150,000 in mortgage debt. That means we would still have to be working the 9-5. We would have more space (that needs cleaning), but it would have stolen away our financial freedom. All the amazing, cool things that we get to do would have to be set aside for “some day” instead of right now.

We could have traded away our dreams for a 1000 sf upgrade. 

We Guarded the Gap instead.

After so much struggle to Grow the Gap, we feel like we ought to be rewarded with upgrades. Fill in the blank for whatever that is for you. Lifestyle inflation happens at every income.

What to do with the Gap?

OK, so now you have this really great gap. Your expenses are lower, your income is higher. You are feeling flush with cash. What exactly do we do with this?

1. Pay down debt:

Use the gap to pay off your credit cards, medical bills, student loans or mortgage. As you pay each item off, your gap will grow even more. As your monthly nut (expenses) go down, your freedom and flexibility increases!

2. Build an emergency/life transition fund:

Emergencies will happen. By having an emergency fund it will help prevent future debt, and provide security. If you want your life to be different (different work, different location, or take a gap year), start building a cash fund that could make it happen.

3. Save for large purchases:

Save up cash to buy your next car. Start saving for the down payment on a home (or to pay cash for a house!). If you can put 20%, 40% or 60% down on a home, your payments for the next 30 years will be smaller (growing the gap). And because you have been saving that money each month, you will have the gap to help pay off the mortgage faster. If you have been saving $1000 a month for 3 years, the $36,000 down payment will lower your mortgage cost. Plus you can start funneling that $1000 toward paying down that new debt.

4. Invest:

By investing in stock index funds, or real estate you are using that money to start growing future income. Invest your gap today, and it will start providing income in the future.

Grow the Gap. Guard the Gap.

If you want to have a life with more financial freedom, more adventure, chasing down your biggest dreams, financial security, living generously, creating fun and meaningful work: Grow the Gap. Guard the Gap.

For Conversation:

Is there one or the other that is more challenging?

What are a few things worth spending your gap on?

Have you noticed the temptation to “major in the minors” with this idea? Like people with really low income just focus on clipping coupons and super high earners ignore the fact they spend 99% of their income and just try to earn even more.

Random thoughts: I found that old paint set from my art class in Amsterdam for this image. When I said, “paint with words” I did not mean I could actually paint words! =) Although my 9 yr old thought it was amazing. Gotta love kids. So easy to impress!

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38 thoughts on “Grow the Gap: Guard the Gap

  1. LOVE the paint set, so cool that it’s tied to Amsterdam memories! “Mind The Gap” is a warning given incessantly over the PA on the London “Tube” subway system. You bring new meaning to the term, and it’s a good one.

    This stuff isn’t hard. Spend less than you make (grow the gap), Invest the difference (guard the gap), and do it for a long time (oh, the wonderul power of compounding!). The basics of Financial Freedom!

    Great post, Ms. Montana. Great post.

    • Well, it shouldn’t be so hard, that is for sure! But the pull of consumerism is strong. I see a lot of people make gains on growing the gap by paying off a bill or earning a raise, only to sell it away for some upgrade in another spot in life. It seems like a never ending cycle. Pay off 1 car, by a new one, pay that off, buy a bigger house, earn a raise, sign the kids up for expensive hobbies.

      I totally thought about calling the post “mind the gap” but I figured Grow the Gap, Guard the Gap was confusing enough. =) But it really is the practice of being mindful of the gap.

  2. That is a nice alliterative way to boil down the essentials of personal finance. I also enjoyed the line “Sometimes we are tempted to major in the minors”. This. I try really hard to apply the Pareto Principle to personal finance: you always want to be sure that you get the biggest bang for buck (I can alliterate too : ).

    • I think people are naturally talented in one area 1. reducing costs 2. increasing income or 3. investing the gap, but it really takes focus in all three areas. A person might be awesome about always investing their gap, but never reduce cost or increase income so the gap is never bigger than $200. I know some people who rock at increasing income, but always end up increasing their lifestyle to go with it. People generally have one really weak area that holds them back.

  3. “Oh you’re having a girl, girls get expensive.” I heard this from a colleague recently telling this to a woman at work who was pregnant, and having a baby girl. Funny thing is that the pregnant girl isn’t a big spender at all. So why are girls expensive? Yup, the usual suspects, Matilda Jane clothing, American girl dolls, $375 birthday parties. Boy, those sure are mandatory expenses. I wonder how poor people even breath in America?

    Anyhow, I am the youngest of five kids, so living two to a room, especially as a kid, is totally normal to me. You are right, guarding the gap is critical. hats off to you for doing it successfully.

    • That is such a strange thing to say about girls being more expensive than boys! (Although I have about 3 feet of hair and Mr. Mt is bald, so maybe I use more shampoo!) =) Our boys share a room and so do our girls. They are all under 10 years old and love it! They would hate to have to sleep alone in a dark room without their built in BBF. =) Maybe when they are older they will feel differently, but for now we are loving having more free time and more flexible work options instead of a bigger house to heat and clean. =)

  4. Ditto what Mrs. BITA said. I don’t think I’ve seen the essence of personal finance better explained in a single post than right here. Great freakin’ job, Ms. M. I’ve been racking my brain for a pithy one-sentence explanation of my money philosophy and your “Grow the gap, mind the gap” line nailed it. Would you mind if I stole it?

    • Aw, thanks so much my groovy friend! I wanted to craft a personal finance talk that I could deliver in under 20 minutes and would apply to people at any point in their earning/saving/spending lives. Feel free to steal away…just quote me. =)

  5. Great concept here. Growing your income is more difficult than cutting expenses, but it’s my preferred method. When it comes to cutting expenses there’s only so far you can go. Eventually you’ll run out of expenses to cut. But our income potential is unlimited. Especially in today’s world with so many side hustle opportunities available.

    I mainly seek to increase my income through work by adding more value to my company. Outside of work, I’ve been hustling to grow my blog in order to generate a second source of income.

    • Yeah, I think people really have to pay some attention to all areas. We tend to focus on keeping our expenses low mostly because I like being super picky about the work we take and the amount we work. But we also are diligent in guarding the gap. I would rather let the cash pile up than spend it on something that doesn’t add a ton of value for us.

  6. Great way to detail and picture out lifestyle inflation. I tend to keep my costs low as I’m trying to transition towards a more minimalist life where I only use, eat, and do with what I have. So far, it’s been keeping the costs pretty low, but there’s always room for improvement and to grow the gap between expenses and income even larger!

    • I feel like growing the gap takes time and dedication. A minimalist lifestyle certainly helps. We have been moving more in that direction the last 2 years. Granted minimalism with 5 little kids isn’t so magazine worthy (no white furniture here!) But we no longer buy things because they are on sale, or because they could be good. If I haven’t noticed that we need that item while standing in our home, we probably don’t need it just because it looked cool in the store. =)

  7. I really love this perspective – grow the gap, guard the gap. The money we earn is precious and it’s our duty to protect it and tell it where to go (via budgeting). I didn’t really grasp this concept until I sat down and tracked every cent that I spent. I then compared it to my salary and thought, “What the! This shirt cost me 2 hours of working!” It’s safe to say that this cause a drastic turn in our finances, hence our new frugal journey.

    • Tracking our spending is so important to figure out where the money is going. Figuring things out via number of working hours is a great way to keep things in perspective. Even with big things. Is this car worth a year of work? Hum… no. I would rather take a year off.

  8. This is exactly how I ensured we had a huge savings cushion against emergencies: continually slimming down expenses, keeping new ones out, while pushing our incomes higher and saving that gap.

    Even though we’re going to have to spend it on a different place to live and wipe the slate clean with higher expenses for safety’s sake, I know that carrying on with the same practices diligently will, over time, get us back on track. It’s one of the reliable things in life ?

    • That is a great point! If we have grown and guarded the gap, it’s there to help as a pseudo emergency fund. It’s allowed me to walk away from crappy jobs. Or add kids to our family. Having a large gap gives us a lot more choices when big things come up! You guys are doing such a great job in a tough spot. =) I’m sure you will grow that gap again!

    • That would be a great exercise: tracking the gap every week. Love it. =) I keep close tabs on our monthly gap and yearly gap. The gap is one of the most exciting numbers to me in personal finance because it represents so much choice and freedom. =)

    • Growing income is a huge leverage point for most people. As long as people guard the gap after they grow it, it can really help expedite the process (by paying down debt obligations or growing passive income via investments.) Good job so far growing the income! It’s almost unlimited vs cutting expenses.

  9. The GAP is indeed the most important aspect in living a FI life! the bigger the gAP, the easier it becomes to design life like you want!

    And I like that your philosophy leaves room to spend money where it returns you the most! Life should not be lived cheap, yet it should be intentional!

    • I think if people can pick the small handful of things most important to them and go crazy frugal on the everything else, then they can live life fully and guard the gap. I have definitely spent a lot of money on my most important thing (highlight reel) over the years, and it’s made life richer because of it. But we also cut our own hair. =)

  10. Holy Crap. Love this. I’ve always loved the idea of Growing the Gap… But Guarding the Gap. I love that you put the two together. Great combination. I can’t decide what’s harder. For us, it’s probably the guarding piece… It’s just so freaking easy to increase our spending with increased income.

    Killer post.

  11. I love your gap idea, even though we really don’t have one right now. We had been growing the gap, I had just gotten a $5000 raise when my husband’s boss’s grant was not renewed. He lost his job nine months early. Thankfully we had been planning for a couple years of adjunct time so have savings and our spending is low but I needed that nine months of extra savings. So we are just treading water. But we’ll keep going and hopefully get that gap back!

    • That is such a huge benefit to having grown and guarded the gap: it’s there to create buffer when things don’t go as planned. It can turn what might be a devastating situation into a frustrating and inconvenient one. Sorry your plans got messed up, but congrats on having that gap there!

  12. That’s great that you guys were able to resist the temptation of buying a larger home when you started your family. Too often people get a raise or have a kid and upgrade their lifestyle. I love this idea of growing the gap and guarding the gap. If you successfully budgeted and had all of your needs taken care of on a smaller salary, there’s no reason not to continue the same lifestyle and bank the difference as your salary grows. Lifestyle creep is all too real for many earners. Great post!

    • The crazy thing is, I’m not sure we could have taken a year off if we had bought a house. Even if we did, we totally would have had to go back to the 9-5 right away. Now we have a few years of flex to enjoy these years while our kids are young and slowly build a business we love.

  13. I just found your blog and I love the practical information you share. I am not married or have children but I had to always watch my pennies growing up without much money.

    I wish you were writing 10 years ago! I would saved so much more money. I know I still have time to catchup though. Being in your 40s we start thinking what will happen if we don’t make drastic changes now. Well,some of us do.

    • Thanks so much Nicole! And better to start adjusting in your 40’s than late 50’s. =) Thanks for being a reader! I wish I had started writing pf stuff 10 years ago too!!! In finding work you love or managing your money: better late than never.

  14. Don’t know what more to say. This article articulates everything we stand for on our website perfectly! I love the simple but poweful 6 word catchphrase. Guarding the gap isn’t easy, especially if you surround yourself with others that could care less about the gap. But you have to remember what got you there and keep you eyes focused on the prize.

    Thanks for the great read!


    • Thanks so much Bert! I totally agree that guarding the gap is the most challenging part, at least on the emotional side. Seeing all that extra cash pile up month after month just begs for lifestyle inflation. =) And I love a good motto. It’s a great, easy way to refocus. This would be a great one to say on the way out the door for the morning. =)