Spend Less Than You Make
Following this advice might be the most fundamentally sound financial decision you ever make.
The cheapskate's mantra is that you should save at least 10% of your pretax income. That said, the prospect of saving money often seems impossible. Many of us feel like we're barely making ends meet as it is. But if you look at how and where you spend your money, you'll probably find that you could scrape up more than just the change in your couch.
Whether you're an obsessive saver or a happy-go-lucky spender, one way to save more is by keeping track of where your money is going. Carry a little notebook for a couple of weeks and write down your expenditures, everything from your morning cup of joe to your rent check. The idea is to estimate what you spend in a given month, so scour your credit card bills and bank statements -- and don't forget to average in to these monthly costs the bigger things like house and car repairs or tuition.
Here's a look at some of the categories you'll probably have to cover in your journal:
| Cashing In Make sure you consider all your many expenses |
|
| MONTHLY INCOME (Before Taxes) |
|
| Salary: | _______________ |
| Freelance work: | _______________ |
| Investment income/bank interest: | _______________ |
| Other: | _______________ |
| TOTAL: | _______________ |
| MONTHLY SPENDING | |
| Taxes (check your pay stub): |
_______________ |
| Mortgage/Rent: | _______________ |
| Monthly savings (excluding company retirement plan): | _______________ |
| Groceries: | _______________ |
| Gas/Electric: | _______________ |
| Telephone: | _______________ |
| Restaurants/Bars: | _______________ |
| Clothes: | _______________ |
| Laundry/Dry cleaning: | _______________ |
| Tuition: | _______________ |
| Student loans: | _______________ |
| Car loans: | _______________ |
| Car expenses (gas/repairs): | _______________ |
| Public transit: | _______________ |
| Home repairs: | _______________ |
| Bank fees: | _______________ |
| Movies/Theater: | _______________ |
| Cable TV: | _______________ |
| Music: | _______________ |
| Gifts: | _______________ |
| Vacations: | _______________ |
| Haircuts: | _______________ |
| Magazines/Newspapers: | _______________ |
| Health Club Fees: | _______________ |
| Child Care: | _______________ |
| Pet Care: | _______________ |
| Insurance Premiums: | _______________ |
| Health: | _______________ |
| Home/Renter's: | _______________ |
| Car: | _______________ |
| Disability: | _______________ |
| Long-term care: | _______________ |
| Life: | _______________ |
| Total: | _______________ |
| Average Monthly Cash Flow: | _______________ |
To get your monthly cash flow, subtract your monthly spending from your monthly income. If you're spending more than you make, you need to slash your spending pronto. On the other hand, if your average monthly cash flow is positive, you have that much to save or invest. If you scan your expenses, particularly how much you spend on eating out or nightlife, you can probably find a way to top or equal that 10% savings goal.
10 Things You Should Do Before You Invest
- Figure out what you're worth.
- Set your goals and figure out how much they cost.
- Spend less than you make.
- Build an emergency savings fund.
- Pay off your credit card debt.
- Insure yourself against the unexpected.
- Contribute to tax-deferred retirement plans like 401(k)s and IRAs.
- Consider using software to keep track of your money and help with your taxes.
- Be your bank's thriftiest customer.
- Check out your credit report.
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