The simple dollar
A reader asked me if I could break down my ideas into a handful
of principles. After some careful thought, I came up with a list of
fourteen basic “rules” that summarize my money and life philosophy.
I’ll be presenting these as a weekly series.
If there is a single rule that underlies everything I’ve written about on The Simple Dollar, it’s this simple sentence:
Spend less than you earn.
It sounds so simple, doesn’t it? Yet there are many people out there
burying themselves in debt (spending more than they earn) or living
purely paycheck to paycheck (spending exactly what they earn).
Simply spending less than you earn has a cascade of positive effects.
First, you begin eliminating your debts. Spending
less than you earn frees up the money you need to make larger payments
on your debts. Over time, they begin to disappear, reducing your
monthly bills and giving you even more breathing room.
Second, you begin to save. First, you build up some
cash savings in your savings account, enabling you to roll through
emergencies (like a car breakdown or a job loss). You’ll also have the
breathing room to start saving for retirement, paving yourself a great
future for your golden years.
Third, your stress level falls. Knowing that you
have fewer debts, your emergencies are covered, and your retirement is
being planned for reduces your stress level. You sleep better, your
overall health improves, and you feel happier about life.
Finally, you are now able to explore possibilities closed to you before.
When your debts are gone and you are spending far less than you’re
bringing in, you suddenly have many more career possibilities. You
don’t have to stick with your high-stress job – you have the financial
freedom to move on and chase your dreams. You can live where – and how –
you want to live.
All of that comes back to one basic principle – spend less than you earn.
That statement actually has two parts, though.
Spend less refers to the fact that you do
need to cut your spending. The first step doesn’t need to be anything
drastic – nor should it be. Many of the more extreme money-saving tips
come from people who have already tried out the basic tips and love
them, so they seek out more intense strategies to further cut their
spending. I do this myself – I’m always trying out new money-saving
strategies, discarding the ones that don’t work for me and keeping the
ones that do.
Here are five big ways to get started.
First, go through every monthly required bill. Ask
yourself if you really need that service at all. Do you really use
Netflix enough, or could you just rent a movie once in a while from
Redbox? Do you really use your cell phone much at all, or could you
just replace it with a pay-as-you-go phone? Then, go through each bill
and see if there are any optional services you can eliminate. Do you
really need premium cable? Do you really need unlimited text messages?
Second, keep diligent track of your spending. Keep a
notebook in your pocket and write down every expense you have. The
simple process of doing this will make you think twice about unnecessary
expenses. When you do have a month’s worth of expenses written down,
take a careful look at them. Ask yourself whether or not each of these
expenses actually contributed to the value and joy of your life. That
process will offer a lot of insight for you as to where your spending is
going to waste.
Third, look carefully at your routines. Watch what
you do every day (or most days). Are there things you do each day that
cost money? Those things are the most powerful ones to adjust, as
trimming just $1 from your daily spending saves you $365 a year. Do you
stop at a coffee shop each day? Why not cut down your daily order a
bit, or switch to a different shop, or start making your coffee at home?
Do you eat out every day? Perhaps you can start brown bagging it a
few days a week. Look at every regular expense you have.
Fourth, get a better bank. The vast majority of
Americans are with banks that don’t treat them very well. No interest
at all on their checking accounts. Tons of fees for ATM use. Draconian
overdraft policies. A tiny interest rate on savings accounts. Monthly
usage fees of all kinds. All of these things are a waste of money.
Switch your accounts to a bank that respects you. From my own
personal experience, I use ING Direct for both savings and checking. I
get great customer service, interest on my checking account, a solid
interest rate on my savings account, and I’ve never had a fee of any
sort.
Finally, do some one-time energy improvements around your home.
Replace some of your light bulbs with CFLs and LEDs. Install a
programmable thermostat. Air seal your home. Blanket your water
heater. Install some SmartStrips to cut down on electricity use. These
tactics will cut down your energy bill significantly, directly reducing
your bills.
Want some more tips? Dig into my list of 100 great money saving tips for people just getting started, as well as 100 free things to do during a money-free weekend.
The rest of the phrase, than you earn,
though, points to the other part of the equation: increasing your
earnings. Increasing your earnings gives you more money with which to
get rid of your debts, save for your big dreams, and build a foundation
for whatever future moves you may want to make.
There are countless ways to earn more money, but there are several
tactics almost anyone can apply in their life. Here are five key ways
to get started increasing your income.
First, don’t waste time at work. The time you spend
sitting idle, browsing the web, or chatting on IM or Twitter with your
buddies is time you’ve effectively lost. Instead, invest that time in something devoted to your career, even if it’s not directly on a work project. There are lots of things you can always be working on – see the other things below, for example.
Second, work on your transferable skills. I’m a big believer in transferable skills
– skills that one can utilize in almost any career path. Work on
mastering such skills. Jump on any and all opportunities to speak in
public. Hammer out an effective time management scheme for you. Get
into a routine of organizing and filing your paperwork. Brainstorm
ideas for things going on in your office. Write clear documentation for
the standard procedures of your work. Step up to the plate, take
charge of a work project, and get the ball moving forward. All of these
things push you towards developing skills that are genuinely useful no
matter where you’re heading in life.
Third, build strong relationships with as many people as you can in your field. Join services like Twitter or LinkedIn
and start conversations with people in your career. Send emails to
people you’ve interacted with a lot in your career and keep up with what
they’re doing. If you have an opportunity to connect people that can
help each other, do it immediately, without hesitation. Share what you
know and be valuable to others.
Fourth, start a side business. I don’t mean filling out surveys or other things you can use to burn a few minutes during the commercial breaks on Lost and earn a few pennies. I mean actually devote serious time and effort to turning a passion you have into a money-making enterprise. Don’t know what that could possibly be? Here are fifty ideas to get you started.
Finally, step up to the plate at work in little ways. There are lots of simple ways to stand out. Speak up at meetings. Show empathy for the problems that others have. Take on only projects you can handle, but do them well.
Get to know the support staff – and treat them well. Don’t burn
bridges when you move on – make an extra effort to maintain good
relationships when you leave. These little things add up to a huge
difference.
Keep that rule in mind: spend less than you earn. Each move you make to maximize the gap between what you earn and what you spend will put you in a better place in your life.
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