If there’s one thing I love about personal finance, it’s that there’s a billion ways of explaining things to people and we all have our own quirks to “getting it.” I could say the same exact thing to any three of you reading this right now, and each of you would take it in and digest it in your own way – all depending on how relatable it was to you or not.
It’s also the reason why most of us money bloggers say the same thing over and over again too, with just a tad bit different spin on it each time – the basics of finance has pretty much remained the same for centuries! Haha… and it never hurts to be reminded of it every now and then too ;) Just like with my latest convo with my brother the other day…
He’s always asking me for the “latest tip” on money, and what he can do real fast to up his game a bit more (hint: nothing rarely happens as fast as you’re wanting it to go in your head), but overtime I’ve gotten better at knowing what he’s *really* after when he asks me stuff like this. Which is really a new way to tell him the same thing I always tell him whenever he’s looking to reach that end goal of his down the line: Financial Freedom. Or, as we both like to talk a lot about – a bigger net worth (cuz it’s easier to track and get our heads around than the term “freedom”).
So, as always, I spit out the two MAIN things to keep concentrating on which improves these numbers the most:
- Lowering your debt/expenses
- Increasing your income
It’s really that simple. Hard to put into practice and stay on top of 24/7, but still very very simple when it comes down to it all. And if y’all watched that killer video I posted yesterday on Joe’s mission from No More Harvard Debt, you’ll see he focused on that *exact* straightforward mantra that got him out of $90,000 debt in a mere 7 months. Pretty incredible!
Let’s go over these two for a bit…
1) Lower Your Expenses
Everyone already knows and wants to do this one, of course, but it’s still very much overlooked. People like me focus on saving a lot and investing even more, but there’s equal impact in lowering all your expenses and getting your lifestyle in check too. Something that I only recently started getting better about myself (remember that post on wanting to need LESS going forward? I have to keep reminding myself that it’s still just as important!).
If you think about it, the less money you need to continue your current lifestyle, the less you should need in the future. The problem people usually have is they spend so much time scrapping by and just killin’ it to get rid of all their debt, but THEN they go right back out there and end up getting some more! Maybe in the form of a new car, or a bigger house or new toys, etc etc. Something we like to call “lifestyle inflation” around here – and something I used to SUCK at too – up until I hit about 25 (I’m now 32).
There’s nothing saying you can’t enjoy life and continue to treat yourself to rewards every now and then – that’s what money is for! – BUT you just gotta be careful of falling into that lifestyle trap of needing more and more money the more successful you get. All those raises and salary bumps you get will try to keep pushing up your expenses, but don’t let it! It’s a trick!
2) Make More Money
This is the other side of things. And again, something everyone knows and wants in life, but for whatever reason never act on it like they wish they would. We talk a lot about side hustles and part-time jobs here on the site, but it’s not because we just like working for the fun of it (although sometimes we do :)), but more because we KNOW what that means in the long run: MORE MONEY! Money money MONEYYYYY!!!!! And the more we make at an earlier age, the faster we hit that almost untouchable goal at the back of our head: getting financially free.
Even though we all like to sugarcoat it, making more money really CAN help you get to where you want to be in life – even if not directly. Some people require more to live out their dreams than others, but at the end of the day the easiest way to get you from point A to point B is by having more money to pull from. (And don’t say you wouldn’t want a million dollars or a ton of money either, because even if you care more about charity or your family or friends or love, or whatever, you can surely use money to help increase your missions there too – it doesn’t all have to be about the devil and greed, contrary to popular belief ;))
This 1-2 punch is the key to reaching these ultimate goals of ours. The more money we can save up from all that hustling we’re doing, and the better we get with each of our expenses – especially the long term ones (*ahem* our mortgages) – the more free our lives will become as the years fly by. Those 2 things alone will speed up the process as fast as it could really go – short of winning the lottery or getting a fancy pants inheritance of epic proportions (which, btw, is totally the wussy way to go – not that you could really help that last one, haha…)
So that’s what I tell my brother every 2 months, and that’s what I’ll keep telling you here too. Nothing we haven’t already talked about over they years, but a fresh reminder to always keep in the back of your heads. Especially as you question things from time to time and/or want that “quick fix” to everything. It may not always be easy, but it’s 100% the honest to goodness truth. Keep on lowering those expenses and bringing home that bacon, baby! You’ll thank yourself every 5 years from now, I promise ;) And you can bet your sweet tookus I’ll be doing the same (Woot!).
(Flag by DonkeyHotey, tweaked by J$)
PS: If you’re just getting started in your journey, here are a few good resources to help track your money. Doesn’t matter which route you go, just that it ends up sticking!
- The "Budget/Net Worth" spreadsheet - the colorful Excel template I personally use.
- The "Money Snapshot" spreadsheet - a simple Excel template I created for my former $$$ clients
If you're not a spreadsheet guy like me and prefer something more automated (which is fine, whatever gets you to take action!), you can try your hand with a free Personal Capital account instead.
Personal Capital is a cool tool that connects with your bank & investment accounts to give you an automated way to track your net worth. You'll get a crystal clear picture of how your spending and investments affect your financial goals (early retirement?), and it's super easy to use.
It only takes a couple minutes to set up and you can grab your free account here. They also do a lot of other cool stuff as well which my early retired friend Justin covers in our full review of Personal Capital - check it out here: Why I Use Personal Capital Almost Every Single Day.
(There's also Mint.com too btw which is also free and automated, but its more focused on day-to-day budgeting rather than long-term net worth building)
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Making more money is key for me. I have already reduced my expenses as much as I can. Every year I do a check just to make sure my expenses are as low as they can be for my lifestyle.
Right now we are just trying to make more money!
As a student I spend very little (but not exactly by choice). In the coming year I hope to make more once I graduate… but still spend very little. Great tips.
We are working on both of these right now. We have out basic household bills down, now we are working on student loan consolidation, refinancing our home since interest rates are half what they were then, husband’s truck is almost paid off, fresh new insurance quotes etc etc. We are both looking at side hustles to use your term. *fingers crossed* We’ll be in a better place within a few months.
@Call Me What You Want Even Cheap – Good!! That’s the way to do it :) And once your expenses are as low as you want them to be, you can then focus all your efforts on generating that cash flow – so keep it up!
@Michelle – You and the rest of us in this world :)
@PB @ Economically Humble – Glad you like them :) And just started reading your blog this week, I enjoy it! You may or may not be my next “new blogger” shout out ;)
@Katie lake – Awesome!! That’s a helluva great place to be too, keep on pushing towards that freedom! :)
Yes those two simple tips are very important and something everybody should always look into reducing one while increasing the other. But what do you do when you have cut all expenses down to the bare bones budget? I would suggest that moving to a more affordable town/ city would help your net worth more than you would imagine.
Oh, lifestyle inflation…. It’s funny to think that my husband and I survived on a combined income of barely more than $30k/year when we first got married… I had just started grad school and was working a low-paying job with local government (have since moved on to a better-paying job with same local government!) just to make sure we had good health insurance, and he was finishing up his undergrad degree and only working part time. We definitely needed a little lifestyle inflation to maintain our sanity once our income finally increased! ;-)
But now, any time we have an increase in income, we allow ourselves a little extra spending money as a “reward” and funnel the rest toward savings or paying down debt. Can’t wait to have the student loans and mortgage paid off early, the ultimate reduction in expenses!
Personal finance is simple math, but discipline is tough. Our expenses are super low + no debt and working on increasing the income side. Having kids puts the fear in ya to make the dough.
I believe that financial freedom can only be attained through a lot of discipline, determination, and hard work. From negative net worth two years ago, we have now paid off our debts and loans. We also have started saving and investing. Although the amount is not big yet, we are now experiencing the financial freedom that we are dreaming of.
You hit the nail on the head J. You can’t just do one without the other or else the results won’t have the compounding effect that it requires. Saving is great, but you are only keeping a portion of your existing cash flow. Making more only increases the cash flow; without controlling the expenses it may just go right out the window. By doing both, you are not only increasing cash flow, but also adding a significant portion of it to the current savings–compounding in effect.
I touched on the same exact thing, and had people saying things like “saving is more beneficial since you already paid taxes on it”, but I don’t buy into that crap. A penny earned adds to the wealth equation, while a penny saved only preserves current wealth. Funny how it seems so simple yet people still argue the point.
I’m definitely trying to increase my income and hopefully something pans out soon. I try to keep my expenses down but at this rate if I cut much else it wouldn’t be worth it to me. I’m doing fine and need to enjoy life a little :)
While we underwent lifestyle hyper-inflation over the last 3 year since getting married, in realtity, it was only to get us to a lower-middle class standard of living AND we managed to over 10% of our gross income last year.
Right now, I’m working on the make more money side of the coin.
Such a simple concept – yet so many people just can’t seem to get it!
Many people I know are under the assumption that the more they make, the more they consume. Sometimes I may find myself doing the same thing. Periodic reviews of my financials really help me curb the extra expenses before they get out of control.
@Rich Uncle EL – Yeah, moving away def. helps with that too for most people, but it’s also one helluva task to do simply to increase your net worth ;) I’d put “making more money” on the list ahead of that (unless you do, indeed, want to move), and there’s no way you can ever max out that department! And the beauty there too, is that you can cut it back down once you hit your goals/etc as well, if you’d like. Just gives you mad options down the road.
@Stephanie – Yeah, awesome!! That’s a great way to handle those raises for sure – treat yourself to something nice, and then slap it all against any debt or savings goals you may have, that’s a great plan :)
@Brent Pittman – Haha, I bet! And I’m sure I’m about to find that out REALLLLL soon too! :)
@Cherleen @ Barbara Friedberg Personal Finance – GOOD!!! That is wonderful to hear, congratulations! Keep it up :)
@Eric J. Nisall – DollarVersity – Haha yup! But we need those people or else there’d be no reasons for our blogs ;) We just gotta keep on spreading the good word, my friend!
@Lance@MoneyLife&More – Oh yeah, for sure. I think there’s def. a point where you can no longer cut out expenses in order to maintain a somewhat-decent lifestyle. I’m pretty sure I’m at that point myself. I KNOW I could cut out more, but the trade off is not worth it to me, so it’s been gungho on making more money now instead. The trick is knowing what you’re comfortable with, and not driving yourself too crazy! :)
@Edward Antrobus III – I see that! I really hope your spices take off – I’m excited to get to use ours that you sent us soon :) That would be a great job to have if you can work it!
@Julie @ Freedom 48 – Yep! So we have to keep reminding people over and over again ;) Kinda like that “you have to hear it 7 times” in order to believe something, or however that saying goes (I think it’s an advertising thing?).
@Matthew Doyle – Good! Periodic reviews are smart things to do – esp to catch yourself like that :) And much better to get in the habit of it now, while we’re all younger, than later when our habits may not want to change much. So right on, brotha!
In a book by Bodo Schäfer (he’s a German) I read the observation that most people usualy need about as much money as they make. And thus everytime they get a raise, they increase their spending. His tip on previnting this is you save 50% of the net salary increase (put it directly into a savings account) and are only allowed to use the other 50% for spending. That way your lifestyle increases will grow less than your salary and you will thus be less likely to spend as much as you earn.
That Bodo is a very smart man :) I pretty tough plan to follow, but a damn good one if you can pull it off!
For the past 2 years, I have been living off of less than $20k annually trying to build a business. It was a true struggle just trying to survive. During this time, I changed my lifestyle and developed frugal habits to get by. Luckily, as of last month, all of the hard work finally came to a fruition and I’ve broken that $20K mark!
Although the money increased, my frugal habits remained. It’s quite nice to see green in the bank for a change.
AWESOME WAY TO SUMMERIZE SO MUCH RIGHT KNOWLEDGE IN SO LITTLE BUT EFFECTIVE WAY
We have heard a million times before that the key to become rich is – Spend less than you earn. This is great advise and one should follow this without any hesitation.
But sometime spending less doesn’t seem much Fun and If one want to spend more then I think it is better to learn how to earn more money. Making more money really can help you get to where you want to be in life.
Good advice. Personal finance really does come down to a handful of tried and true principles. Too often we lose sight of that and look for something new, when the answers haven’t really changed.
@Marvin – AWESOME!! Congrats man, that’s great!! Keep killing it! :)
@readtoawake – You got that right, sir. The rules are pretty simple with money, but we just gotta figure out our *own* way to really follow through and make it HAPPEN for ourselves. If we don’t, no one else will for us, right? :)
@Justin @ The Family Finances – Yep! The reminders never hurt either, that’s for sure.
Excellent article. I really enjoyed it.
For me, it is cutting expenses. I believe that increasing income can come with little effort (raises at work will come with experience and time, and you can always start a side project), but decreasing expenses is tough due to peer pressure and life. Example, it’s Friday night and your friends want to go to a nice bar. You don’t want to stay at home, but spending $50 at the bar is not that enticing either. Choices, choices, choices!
Have a great day,
Always about choices, isn’t it? :) We can have whatever we want, but we can’t have ALL of it!