When it comes to personal finance, you essentially have two major areas of focus: your income and your expenses. On the income side, you’re dependent on a number of external factors such as the economy, your employer, your tax rate, your industry, etc. These external factors can sometimes work against you, making it difficult to make strides in increasing your income in order to improve your financial condition. On the other hand, your expenses or your spending is for the most part, completely under your control. Since you control your spending, you can definitely make strides in this area so that you can increase your bottom line or your savings rate.
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Sure, there are scenarios where you can’t control every aspect of your expenses. For example, maybe you have medical needs that are beyond your control and eat into your income each month. With that said, the majority of your expenses such as housing, food, entertainment, auto are all adjustable and under your control.
This is a very important aspect of personal finance to understand clearly. The point is that you can improve your financial life, whether it is by paying off your debt or boosting your savings, by improving on this area that you have complete control over. The only question is how far you’re willing to take it and whether or not you’re willing to exercise a significant level of control over your expenses.
First up, your biggest expense: housing. Most people spend entirely too much on housing.
First, the recent real estate bubble created a scenario where way too many people are living beyond their means when it comes to the home they live in. Second, real estate is very emotional and you can easily get caught up in the idea of living in a certain home despite the large expenses it represents. Remember, housing is an expense. Nothing more. As such, we want to keep it low, just like any other expense. Take strides today to get yourself in a better position with your residence. If you need to sell a house at a loss, I say do it. Get your monthly housing expense under control!
Next on the list is your car or transportation expenses. It’s crazy that so many of us have large auto payments each month. It’s time to quit caring about what we drive and get a car that is reliable and nothing more. Sell your expensive car, pay cash for the next one, and do what you can to keep it moving. This is an area of people’s lives that far too often results in significant amounts of money lost.
When it comes to food and entertainment, this is all about lifestyle. How often do you eat at a restaurant each week? Do you eat out for lunch at work on a regular basis? It’s time to start controlling how much you spend on eating out. When it comes to groceries, get more efficient at planning meals and buy only the necessary items for those planned meals. With regards to entertainment, this is pure discretionary spending. Cut all of it out of your month if you’re up for it.
These three areas will jump-start the control process of your expenses. You can get into other areas such as clothing, dry cleaning, etc. but master these three large categories will make a significant impact on your financial life.
Remember, you may not be able to control everything about your income due to a lack of available opportunities, but you can definitely control your spending. Are you willing to take control and take the road to real wealth in your life?