The Secret To Spending Less Than You Earn

By Craig Ford (Staff Writer), on February 23, 2010

If you read enough personal finance blogs, you’ll see a common theme and the number one answer to your financial dilemma — “Spend Less than You Earn”. Unfortunately, it’s easier said than done, otherwise, we wouldn’t have this rampant debt problem in our society. Fortunately, I went through this myself, and over the years, I’ve learned a few tricks that might help you.

Photo by Mil8 via Flickr

The secret to spending less than you earn

Step #1  You Must Know Your Income

I find it amazing the number of people who call the Dave Ramsey show who cannot immediately say how much they make annually.  Actually, I used to find it amazing until I found myself in the same category.

This step is especially hard for people who run a small business, have multiple income streams, or whose pay fluctuates in any way.  Nevertheless, you cannot spend less than you earn if you don’t know what you earn.

Step #2: You Must Establish a Spending Plan (also known as a Budget)

Once you know your income you should remember you cannot spend more than this number.

Some people budget and account weekly, others monthly, and some quarterly.  The important thing is that you do keep a budget.  If you are new to budgeting here is a list of suggested budget categories as well as a guide on how to make a budget.

Step #3 Put a System in Place to Minimize the Accounting Work

The accounting responsibilities will successfully kill any budget. Make it simple. To start with I suggest you start using the cash budget envelope system.

Now the only rule is that you do not spend more money than you have in your envelope.  Always be sure your budget is doing it’s job.

Step #4 Review the Budget, Income, and Spending — Fix Any Issues

You might find that it is hard to make your budget work.  There are two common reasons.

1. You regular expenses are too high. These are set amounts every month and include things like insurance, cable, phones, internet, and electricity.  If you have cut your spending down and still have trouble spending less than you earn, you will need to cut some of these services – phone, cable, and/or internet.
2. Your income is too low You could make extra money on Ebay, Craigslist, or even a garage sale.  These short term solutions should give you time to look for another part time job or make money from home.  You could even consider a small business with a low start up cost.  Here is 9 weird ways to make extra money.

Once you have found the balance between your income and your expenses you are now in a position to spend less than you earn.

Anyone out there spend less than you earn?  What are your tips, ideas, or suggestions?

Recommended articles:

• Cash Envelope Budgeting System
• Budget Once, Spend (or Save) Twice!
• How To Stick To Your Budget
• Dave Ramsey’s Financial Success Video
• Extra Income Guide: How To Earn More Money
• Building Multiple Income Streams As A Career
• What’s Your Financial IQ? Here’s A Test

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Craig is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap, a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night.

All posts by Craig Ford (Staff Writer)

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