Spend Less Than You Earn

Today’s post starts off the “Family Financial Guidelines” series. Whether you’re going through a financial turnaround or are just wanting to stay on top of things, this series will give you the tools to get and keep your family’s finances on track.

A lot of people look for shortcuts and easy ways to turn their financial situation around. It sure would be great to find one small, easy fix that would completely transform your situation, and if I found such a fix I would be sure to write a book about it and make a bunch of money from it. But what if I told you that there is such a fix, and that it has been around as long as money itself?

The Basic Principle of Family Finances
There is a common denominator in virtually every situation where a major financial turnaround is necessary. Like I mentioned yesterday, a lot of these turnarounds start when you reach a point where you’re tired of the collection agencies calling, the constant juggling of bills, the paycheck-to-paycheck lifestyle, the stress of knowing that the next unexpected bill (car repair, appliance replacement, medical bill, etc.) will put you over the edge and you want to make it all stop. The fix for this is to spend less than you earn.

This simple concept is the cornerstone of successful personal finance. Spending less than you earn results in a number of positive benefits:

- You can eliminate debt: Every month that you spend less than you earn, you can take that difference and pay down your high-interest debt.
- You can build savings: Just like paying down debt, you can take a portion of the difference and put it in a savings account for future emergencies.
- You can lower your general stress level: This is a big one. When you know that your monthly spending is consistently lower than your monthly income, you can sleep a lot better at night knowing that you’re financial situation is improving each and every month.

Two Sides of the Coin
There are two parts to this concept, both of which are important. You can work to both spend less and to earn more.

Spend Less: The fastest way to start spending less than you earn is to find things you regularly spend money on that you can cut back on. This does not mean you necessarily have to cut out all non-essential spending. What it means is that you need to review everything you regularly spend money on and decide what things you can cut back on, what things you can find a less expensive alternative for, and what things you can cut out altogether.

- Shop around for lower auto and homeowners insurance rates.
- Eat out one less meal per week.
- Switch to a basic cable or satellite package, or cut it out altogether and sign up for Netflix streaming.
- Cut out a few coupons from the Sunday newspaper.
- Install a programmable thermostat and CFL light bulbs in your house.

Earn More: Typically the “earn more” approach takes longer than the “spend less approach”, but it is definitely worth working toward. Ideally, you can find ways to both spend less and earn more. And as an important note, “earn more” doesn’t only relate to your job.

- Go through the clutter in your home or apartment and sell unused items on Ebay, Craigslist, or have a yard sale.
- Do your best while at work. Go the extra mile to master complicated tasks and responsibilities.
- Take on a part-time job, or start a small side business to earn some supplemental income.
- Learn a new skill or further your education

The Bottom Line
There is no magic fix to turn around your financial situation. However, spending less than you earn is the closest thing.