This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Friday, August 24, 2007

Stop planning your life around payday!

Posted by Matt
Are you confident that the money you have in your checking account right now will cover all of your upcoming expenses? If not, you probably catch yourself scheduling things around payday and feeling very stressed until that day comes (I know from experience.)

I felt so liberated when I was able to finally unlink my life from payday. It was my first big milestone on the way to financial stability and I'd like to share what I learned via my next several posts in this blog.

The first step is to try to get to a place where you have more money flowing in than out. (Notice that I did NOT say "the same amount of money flowing in as out"; that is the proverbial "paycheck to paycheck" and it is a road to nowhere.)

Track expenses and eliminate as many as possible. This is an area that many financial advisors focus on and is a common first step in financial planning, but it didn't take me long to realize that, though important, expense reduction is only half of the equation. The other half is income and it has to be sufficient to cover at least the basics (food, shelter, utilities, etc.). When I was in my early twenties, I shared housing, drove a used car, spent minimally on clothes and watched my finances fairly closely, but found that I still never managed to save much. This was one of the reasons I finally decided to ditch my exciting but low-paying EMT job and start working for a software company where I would have more opportunities to increase the amount of money coming in. My earnings didn't exactly skyrocket, but it was finally enough to leave me with something extra each month.

Achieving this first goal (earning more than you spend) is one of the hardest, but also the most important. If you are not at least a little bit ahead each month, then the most you can ever hope for is that your financial situation will be exactly the same as it is now.

In my next post, I'll tell you what I did (and what I think you should do) with that "extra" each month.

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