Spend Less Than You Make

Almost every personal finance blogger has some foundational pieces to their strategy.  I’ve read quite a few over the years, and the idea of spending less than you make is going to be a theme for me.  No matter where you are in life, until your inputs are larger than your outputs, nothing else in your financial world matters.

One dollar in. Less than one dollar out.

The neat thing is, there is a ton of opportunity here.  You can cut costs in a variety of ways.  You can figure out ways to make more money.  We’ll explore a ton of different strategies on both sides of the equation in subsequent posts.

For starters, let’s take a part of Robert Kiyosaki’s Cash Flow Quadrant: Income and Expenses.  If you haven’t done this exercise before, it’s well worth your time.

 
1. Create a big T on a blank piece of paper (or two columns in a spreadsheet).
2. On the left side, title the section Income.
3. Make a list of all of your income sources. If it varies from month to month, estimate (Ave, 80%, or pick a value that you think is appropriate).
4. For each source, write down how much monthly income it provides (before taxes, deductions, etc.)
5. Now on the right side, title it Expenses
6. List all of your expenses
7. For each one, record the monthly cost. again, if it varies from month to month, estimate (Ave, 80%, or pick a value that you think is representative).
8. Add up each side to get total (gross) income and total expenses.
9. Subtract total expenses from total income to look at your net income.

Now for some analysis: Is your gross income greater than your expenses? What do you do with your excess income? How many income sources do you have? Do you have more expenses than income sources?

We’ll explore different ways to use this framework in many future posts. Do you have another prefered framework?

 

Copyright © 2016 · All Rights Reserved · Plant Your Own Money Tree