Personal Finance Summarized In One Sentence
I’ve been writing about personal finance for well over a year now. I’ve covered many topics, including building your emergency fund, getting out of debt, and managing your finances stress-free.
But all of that boils down to one major principle. It’s one that you’ve probably heard before, but may need to be reminded of to excel your financial position. Are you ready? Here it is:
“Live on less than you make.”
Simple? Isn’t it? Well, actually it isn’t always simple. In fact, it’s easier said than done.
Today I’d like to show you a few ways to live on less than you make. You may have mastered one element of the financial equation, but not the other. Let’s take a look.
Income and Expenses
There are two things you must master in order to excel in your personal finances. The first thing is your income. As Dave Ramsey says, “Your income is your most powerful wealth-building tool.”
If your income is lacking, try these things:
- Get a second part time job. You can deliver pizzas, mow some lawns, or wait on some tables. Whatever it is that you’d like to do, DO IT!
- Step out into your dream job. Sometimes you simply need a career change, and getting a second job won’t cut it. If you’re demotivated at work, get motivated by NEW work! Ask yourself what you do for fun, and how you can turn that into your job.
If your expenses are out of control, try these things:
- Make a list of all your expenses and take action! Start with those expenses that are highest in amount, moving down to those that are lowest in amount. Then ask yourself if you can eliminate any expenses near the top of the list – the most expensive ones – and save yourself some money! Don’t forget to remove all the lower expenses that are sapping your cash flow too!
- Use the envelope budgeting system. Customers of eBillme understand that using cash is the best way to pay for items. The envelope budgeting system does just that and allows you to see exactly what you’re spending. You’ll feel the pain as you hand over cold hard cash to the register attendant.
Income – Expenses = Financial Shovel
To dig yourself out of a hole, you’ll need a shovel to fill in the dirt. The hole represents your debt or financial goals yet to be realized, and the shovel represents how much money you have left at the end of the month so that you can reach your goals faster.
To calculate the size of your financial shovel, you’ll need to minus your expenses from your income.
First determine exactly how much income you are bringing in every month. If this number varies, take an average of the past 3 to 6 months of income history. Then find out how much you’re spending every month (you should know this amount by looking at your budget).
For example, let’s say your income is $3,000 per month and your expenses are $2,100 per month. $3,000 – $2,100 = $900. $900 is the size of your financial shovel.
You could use this $900 to pay off debt, build your emergency fund, or throw toward any other large financial goals you have coming down the road.
No New Non-Mortgage Debt!
By living on less than you make, you’re pledging to not go into debt. Isn’t living on more than you make going into debt?
Make a pledge today to never go into more non-mortgage debt. That’s right, student loans, car loans, and credit cards all need to be eliminated. If you feel the need to get a 15-year fixed rate mortgage (as long as it isn’t more than 25% of your take home pay), that’s probably acceptable – but even that isn’t living up to the live-on-less-than-you-make standard.
Do you live on less than you make? What’s your standard of appropriate financial living? Tell us about it in the comments!
Photo by alancleaver_2000
Looking for ways to earn money while you shop – check this blog post out!
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