The Golden Rule: “Treat others as you would like to be treated.” My kids have heard this expression so many times that all I have to do is start with, “Treat…” and they finish it off with a flourish. I’m like that, but I’m sure they’re probably sick of hearing it.
As I continue to explore a recipe for financial security, there’s a rule that’s nearly as well-known: Spend less than you earn. You’re probably sick of hearing that, right? Even so, it’s a concept that can literally transform your life so we need to discuss it.
Are you on track? The truth is you don’t need a spreadsheet, financial calculator or fancy online tool to figure it out. The evidence can be found in your credit card statements, checking balances and the overall relationship you have with money. Is it a love/hate type of thing? I was at a military spouse event and asked the audience how many were stressed about their finances. The vast majority of hands went up.
To significantly reduce the burden that often comes with living beyond your means, the first step has to be getting it right with your income and expenses. In other words, you’ve got to know where your money goes. Thankfully, there are online tools to help you categorize and track your spending. But even a handwritten list of expenditures or a self-created spreadsheet can provide enough information to act upon. The key is to act. And act means cut back and cut out.
We went through this exercise (in panic mode) a few years ago when my wife was finishing her Nurse Practitioner program and wasn’t working (for pay) at all. Since we’d known it was coming, we delayed all major purchases and made some necessary adjustments in our day-to-day spending. For example, I determined my first Diet Dr. Pepper of the day was a need, and the rest were just “wants.”Okay, that was a joke (sort of), but you catch my drift.
Figuring out what you really need and then cutting back or out the wants is the key to making sure your income lasts the whole month …and then some. Yes, I understand you’re going to have to tune out a lot of societal noise to make this happen (buy this and that and don’t let the Joneses out of your sight), but in the end the payoff will be worth it.
Another thing to remember as you blaze your own path to financial freedom is that saving must be part of your spending. What I’m saying is that a robust portion of your monthly expenses should be planned which means systematic contributions to your short-term (emergency fund) and longer term (college, retirement, etc.) savings and investments. Whether it’s additions to a 529 college savings plan, funding the TSP, or sending money to a Roth IRA, this can all be implemented and yes, you can still end each month in the black.
You might be saying, “that’s great, but what about all the debt we already have?” Well, I always tell folks the first step to getting out of debt is to stop creating it, and that, my friends, means spending less than you earn. If that’s where you’re at now, then the fruits of your labor (extra money) will have to be directed toward knocking out that debt in a measured and planned manner before you go head over heals into saving and investing, but that’s all right.
So, where does all that leave you? It won’t be a stress-free existence by any means, but at least your stress won’t be money driven. You’ll be ready for almost anything that surprises you in the short-term because you’ve got some cash stashed away. You’ll be building for the future, and you’ll have a new lease on life. At that point, I’d also bet that the personal finance golden rule of “Spend less than you earn” will no longer be something you’re sick of hearing.
Posts in this series include:
Introduction: A Recipe For Financial Success
Part One: Preparation: A Key Ingredient in Financial Progress
Part Two: A Tried and True Money Golden Rule (this post)
Part Three: Building a Base: Emergency Funds
Part Four: Save Now For Retirement
Part Five: No Fighting Over Leftovers
Part Six: Tying It All Together
