The Secret to Spending Less Than You Earn

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?

About the Author

By , on Feb 23, 2010
Craig Ford
Craig Ford 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.

Leave Your Comment (6 Comments)

  1. Edward Carlton says:

    Great Article and great site, I’ve been reading it all afternoon.

  2. MikeB says:

    Your step #4 is what makes the biggest difference for me. I am concerned every day that my job will be another one that is eliminated. However, instead of waiting for that to happen I’ve worked hard to cut my expenses and have found small ways to make more money. One thing I did find by aggressively looking for ways to cut my expenses is that I’ve been paying too much for too many things all along!! I feel more secure knowing I can live on a lot less.

  3. You’re right, it’s really really hard to try and spend less than you make. Budgets really can be hard to stick to because they’re not fun. What I do is I automatically deduct what I want to save from my bank to another savings account. I don’t even have to think about it… I find it easier that way. Then the leftover money is money that you don’t have to worry about… but of course you’ll have to make sure that you don’t spend more than what you have in the bank!

  4. Kevin K. says:

    Even if your income is low, you can still make a decent living if you know how to balance your personal budget. I’m not saying come up with a detailed budget like the feds, but at least, in your mind, know how much money you can spend with the money you have. Remember, excessive debt got America into its current debt.

  5. Ted says:

    Great post. We are just starting to purposely track every dollar and tell it where to go. We kind of guessed before (yeah, I know, I know). I find it to be really rewarding when we get our budget right, we spend what we say we will. Its great! The hard part is when we go over because we under budgeted. grr. Hopefully in about 2 more months, we will have our budget down pat and can get on to the next financial goals.

  6. Lulu says:

    One tip I have used to help me to spend less than I earn was to make my budget based on slightly less than my actual income. I have a zero based budget, so all expenses equal income but then I trimmed the budget down to about $50 less than my salary. I also do not account for any extra money, like interest that comes in or earnings from the blog.

    This way I spend less than I actually make and can transfer the excess to savings OR snowflake it to debt.

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