Wednesday, April 14, 2010

Spending Less Than You Earn

I hit on the main ways of diagnosing your financial health in this past post.  I'm going to use Wednesdays to go further in depth on each point since I truly believe that financial health leads to less stress and happier lives.

The first point was to spend less than you earn.  This means that the money you have going out needs to be less (hopefully a lot less) than the money you have coming in.  Constant, overwhelming debt is not healthy for you or your future.

List Your Income and Expenses
In order to spend less than you earn, you need to know how much you earn and how much you spend.  I'd suggest writing down your known monthly income and expenses first.  Then spend a whole month adding anything you missed to that list.  Not only will this be a definitive picture of your spending and salary, but it will give you a great start on beginning a budget as well.

Ways to Widen the Gap
If you are not where you want to be once you've seen this list, you do have options:

1)  Decrease your spending.
2)  Get a better paying job.
3)  Find other income sources.

Decrease Spending
To decrease your spending, I'd suggest first cancelling or discontinuing any expenses that you really don't want or need.  Don't go crazy or be regretful...simply cut the fat.  I was surprised at some expenses I forgot about when we started tracking our spending.  It was easy to cut out an $8 monthly online game membership fee and a $25 a month gym membership since we had stopped using both of those.

If that doesn't solve your problems, then look to cut expenses that you might want, but don't really need.  Luxury expenses can wait until your income increases.  I'd consider internet and a cell phone as almost-necessities, but cable isn't.  I'm sorry since I love cable, but if you aren't making more than you spend, it has got to go.

Income Ideas
If you still aren't there yet after getting back to the basics, then you need to look at increasing your income. 

Obviously, only you know you well enough to get a better-paying job.  Other income sources are also a personal matter.  I worked for a book store for $7 an hour for 3 months in order to make a little part-time cash.  I've also babysat and taken care of pets.  I've most recently started a blog, although I wouldn't consider this a great way to make fast money (I've made about $10 in 2 months).  My husband is a contract sports official for middle school and high school football and basketball.  He can also tutor.  What sounds good to you?

In short, you need to spend less than you earn to stay fiscally sane.  I prefer to spend much less than we earn since we have an early retirement goal.  Look at your situation and access your options to make this happen.  Good luck.

Are you spending less than you earn?  If so, are you happy with your position?  If not, did this article help?  Does anybody else have any suggestions on this point?


  1. You hit the nail on the head with your post title. If everyone did that there would not be bankruptcies.

  2. I've learned this lesson the hard way but I would never think about spending more than I make now.

  3. I love how the topic appears to be very simple and 'common sense' and yet so many people do not live this way (I've been guilty of it myself!)

    I actually currently do really well with keeping our expenses lower than our earnings. I would like to find work but it's been a wild ride moving to France this year. . .maybe when we get settled.

    One thing I'm not happy about though--I have not invested our emergency fund. Just doing a few simulations, if I invest it over the next five years, we stand to come out with $3-5000 more than if I don't invest it (say in a laddered CD or something). That's easy money--and it doesn't even really require work or penny pinching on my part. Need to get it done!

  4. So simple it makes a lot of sense. I used to spend more that I earned and as a consequence I racked up a lot of credit card debt until I met my spouse who put my butt into gear. Now I am debt free, can afford my car payments and we now own a house with mortgage less than what we used to pay renting. At this point we are just slightly spending less than what we earn and working on widening that gap so we can put more money aside for the rainy day. This article just reminded me that I need to revisit my personal balance sheet tonight. THANKS!

  5. I've been tracking expenses for years, but didn't pay enough attention to them. Consequently my expenses creeped up over the years. I went expense hunting last year, looking to reduce everything and anything I could. Mainly, looking to reduce any expense we incurred on a regular basis, be it food shopping, insurance premiums, or whatever. I feel much better about that side of the equation and vowed to look at it at least once a year to see if anything crept back up. If people aren't careful, lifestyle inflation takes over.

  6. I've been spending less than I earn for years now (basically since I started my first pf blog) but like MikeS expense creep had started to bother me. I KNOW I could be spending a heck of a lot less, and using that money to pay off the mortgage faster and/or invest more. I just need to go ahead and do it now.

  7. Simple in France, lock yourself away for an hour and get a great CD ladder going...good luck! I know it's easy to need to do something but not as easy to start doing it...

  8. mario, no prob. :-)

    We're going to revisit our budget this month too.

  9. I agree about the blogging... you've made more than I have thus far! Although, putting ads up would help. Long term consistent work with your blog will reap you steady decent income, however, for you to use however you'd like.

  10. If you don't take savings into account, we spend less than we earn. Pretty much my entire salary goes into savings of some kind so I think we are OK there. If my husband gets another raise, then the total of my salary plus part of his will go towards savings. Savings includes college savings, upping the emergency fund, and retirement savings.

  11. Julie, that's amazing. I'm really jealous. :-)

  12. This is a great way to start. I'd like to hear more on how to do this with a variable and slightly erratic income. For instance, in my case, I based my annual budget on my income over the past two years. However, this year our income has been a little lower so I'm having to readjust our budget which doesn't leave much room for saving. Any ideas!

  13. Little House, if I had an erratic income, I'd budget for the smallest I had ever made minus 10%. That way any extra would be a happy surprise for the savings accounts. I'd also make sure to have a much larger emergency fund than I do now. Obviously this only works if you can live on that amount...