Spend Less than What You Earn

This is the third post in the Money Girl’s Beginners Guide to Becoming Rich. To read all posts in order, start with Change your Money Mindset then continue reading the rest of the series on this page.

Get Rich By Following One Important Rule: Spend Less than You Earn.

It sounds so simple, doesn’t it? Sadly, for many people, it just isn’t that obvious. Spending less than you earn frees up the money to help you begin eliminating your debts, start saving for emergencies, and setting aside for your financial goals. When your debts are gone and you are spending far less than you’re bringing in, you suddenly have many more possibilities. You have the financial freedom to move on and chase your dreams. You can live where – and how – you want to live.

Step One: Figure Out How Much You Earn

You need to know how much you earn in order to know how much money you can afford to spend and save. Knowing your income will help you create a budget that allows you to pay for living expenses, such as food and rent, as well as set aside money for entertainment, special purchases, or emergencies.

Here are some easy ways to estimate how much your monthly or yearly income will be.

If you are already receiving a paycheck, and it is

Weekly: Multiply the amount on the paycheck by 4.3 to figure out your monthly net income. Multiply the amount on the paycheck by 52 to figure out your yearly income.

Monthly: Multiply the amount on the paycheck by 12 to figure out your yearly net income.

In addition to your income from job(s), you should also remember to add in any money you earn from other sources. Here is a list of possible income sources.

  • wages, salaries
  • self-employment/business income
  • pension/retirement
  • unemployment benefits
  • public assistance
  • social security
  • veteran benefits
  • investments
  • insurance benefits
  • disability benefits
  • help from family/friends
  • other

Step Two: Figure Out Where Your Money Goes

To gain control of your financial situation, you must recognize and keep track of your expenses and where your money goes. The most important aspect of keeping your money is being aware of how much of it you are spending. If you do not learn to manage smaller amounts of money, you will find it harder to keep it in larger amounts. While it may not seem like you’re spending much at the time, these slowly but surely can add up to quite a bit of money over a month or year. Keep this in mind during your money education this month.

Evaluate your habits. Begin jotting down or listing down everything you spend your money on during a one-month period. I mean everything, no matter how small! Write down everything no matter how small. It is easier to see how much you spend on items when it’s down on paper or on your computer.

Expense Tracker

The next few steps will show you exactly how to do this.

First, let’s begin with spending categories. Take a piece of paper, and write down every type of expense you can think of. Group each purchase according to similarities. You can be as specific or as general as you’d like. I would try to make it less complicated. This list of categories below should give you a great start, and is exactly what I would use on a regular basis.

Home {mortgage/rent, furniture, appliances, maintenance & renovations}
Car {insurance, gas, repairs, and any payments}
Food {groceries and eating out}
Giving {tithing, or general donations}
Medical {consultation, check-ups, insurance and prescriptions}
Utilities {water, electricity, cable, internet, and phone}
Personal Care {toiletries, hair, makeup, clothes, etc}
Services {housekeeper, babysitter, driver, cook, babysitter, labandera, etc}
Gifts {Christmas, birthday, and cards}
Other {children, entertainment, hobbies, memberships, and miscellaneous household items}

Now, let’s start tracking our expenses.

Second, choose your method of tracking. There are several ways to do this. I have used pen and paper, Excel and now there are even mobile apps to help you get financially organized. No matter which method you choose, the essentials will stay exactly the same.

The easiest way to start is to print in paper a Expense Tracker worksheet to hang on your wall or place on your desk calendar. {Save receipts for a couple of weeks or a month. If you want to start writing your expenses today, and don’t have receipts, it is possible, just slightly more difficult.} Enter every single receipt soon after you arrive home after shopping or running errands. You can place a little checkmark on the receipt to signify that you already entered it and file it away in a small file case or envelope. For purchases that don’t have a receipt {like fare or sari-sari store purchases}, write these in every time you make a payment so you don’t forget to track them.

To help you track your monthly expenses, download the Tracking Your Expenses Worksheet. Shown below are download links to the Worksheet in a few different formats. These printables makes tracking your expenses SO easy!

Expense Tracker

Download the printable file – with Categories

Download the printable file – blank

Download the Excel file

As you develop the routine of tracking all your expenses, you may discover some surprising spending habits and more knowledge about your financial situation than you’ve ever had before. For example, you might not have realized you were blindly spending hundreds at the grocery store, or how much those Starbucks visits are really costing you each week.

You can use this tool to slow down your spending in certain areas, yet it will still be hard to develop an accurate picture of your finances if you only track your money after you spend it. In the next post, I’ll show you how to take a pro-active approach that will keep you from spending too much in any area of your life.

Yes, we are going to talk all about budgets!

{Go to the next step: Create Your First Budget Plan}

4 thoughts on “Spend Less than What You Earn

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