The Golden Rule

Of all the books, audio programs, videos, courses, articles and blogs written about financial success, there is one golden rule that will always ensure your success: spend less than you earn. It is an extremely simple rule but is often overlooked in the era of easy credit. Though now it is even more relevant as credit has dried up thanks to the Great Recession.

No matter how much or how little income you have, always spend less than your total income. You’ll always have money left over no matter what happens. Even if you have debt payments from credit cards, car loans and mortgage, there should always be a surplus. If there isn’t and you are constantly using credit cards to supplement your income, then you need to begin a serious debt reduction program. For that I recommend downloading my free e-book, Debt is Four-Letter Word.

Budgeting

Yes, budgeting can be a dirty word, but it is helpful if your expenses exceed income. Make a list of all your expenses: mortgage, cars, loans, credit card payments, food, utilities, fuel, clothing, etc. That includes dining out, Starbucks, miscellaneous expenditures, and anything you purchase regularly over a 30-day period. Also factor in the average of non-monthly expense such as car repairs and insurance.

Add up your expenses and compare the total to your income. Are you over or under? If you’re under, that’s great! If you’re just slightly under, break-even, or over, then you’ll need to go through your expenses and begin eliminating or cutting back on items to get you into the black.

Start with the small things like Starbucks. If you eat out for lunch everyday, start brown-bagging it a few times week. If your expenses are way out of line, brown-bag it every day. Look into reducing cable and satellite TV service. Are you paying for cell phone services that you don’t use that much? How much are you spending on prepackaged foods? Are you dining out every day? Look into every item and see if you can reduce or eliminate it. This approach will generally get you back into the black. Yes, you may have to sacrifice a few luxuries but just know that it is temporary until your income increases.

The key is to never use debt to supplement your income. It is a trap that is difficult and painful to get out of. Sure you can handle the payments in the beginning, but over time those payments eat up your income. In extreme cases, it can lead to outright bankruptcy.

When you need to purchase something, always make sure you have enough cash to make the purchase. Don’t use your credit cards even if you say that you’ll pay off the balance at the end of the month. Think as if you don’t have any credit cards. This will also make you think twice about purchasing something you may not need immediately.

Conclusion

If you learn anything from any self-help book or from this blog, always learn the golden rule: spend less than you earn. You will always be prosperous no matter how much money you make.

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