I have been doing a monthly series in my newsletter for my clients about getting control of your finances in 2008. Boy, how appropriate this has been given the events of the last week! Here is part 6 of my newsletter series:
Now we're moving on to step 6 to get control of your finances. You've tracked your spending, created your budget, started your emergency fund, put a plan in place to get out of debt, opened a retirement account, and now you need to....
6. SPEND LESS THAN YOU EARN
Now this one seems pretty obvious, but you'd be surprised how many people routinely spend more money than they actually have coming in each month-and some don't even realize it!
Spending less than you earn is actually THE fundamental personal finance principle. To build wealth, you must spend less than you earn. Just think-if you are spending less than you earn, you are WEALTHY! The larger the gap between the money you earn and the money you spend, the faster you are accumulating wealth. If you are spending more than you earn, you are going the wrong direction, losing wealth and accumulating debt.
According to www.getrichslowly.org, "There are only two things you can do to gain more wealth: spend less and earn more." The website's advice? Stop spending money! Yep, it's that simple. Really pay attention to what you are spending your money on-that should have become apparent as you were tracking your spending. Of course, there are some things that you need to buy, but learn to spend less on those items; and just stop buying things you don't need. I know, I know, easier said then done; but if your focus is on getting control of your finances, it's time to take this step to building wealth.
Naturally, the other way to build wealth following this fundamental principle is to increase what you are earning. By treating your career like your most important asset, you can become successful and increase your earning potential. Invest in your education to help you land a better job and open more opportunities for yourself. Pay attention to your professional reputation to build bridges that will continually help you move to the next level. All this will help increase earnings, and in turn, build wealth.
It seems pretty simple and straight for ward because IT IS! You have tracked spending and created a budget, so you should know if you are spending less than you earn-if you aren't, then it's time to find a way to do just that. Everything you have done so far builds up to the simple wealth equation:
Wealth=what you earn-what you spend. Make this equation work for you and you have got it!
Up next time -Automate your finances.