Which is easier? Making more money or spending less?
Judging by the number of folks who play the lottery and
people who daydream over pay raises, most of us think that
the key to wealth is making more money. But for every
family that thinks they could make it "if only" they earned
15% more a year, there is another equivalent family already
earning that amount, thinking they could make ends meet "if
only" they earned 15% more a year.
While income is undoubtedly important and no one should
scoff at the opportunity to ethically and honestly increase
earning power, what we take in is somewhat out of our
control. If you work for somebody else, your pay is based
on a number of factors, including overall business
performance and market conditions-two things you don't have
much influence on. If you work for yourself, your business
depends on competition, market conditions, and how well
your potential customers are doing. Again, these are things
that are largely beyond your control.
However, most of us have tremendous control over what we
spend. We don't usually care to exercise this control and,
in fact, our sense of mastery in this area has probably
atrophied. But we can all restrict our spending, sometimes
in ways that have startlingly little impact on our
lifestyle.
Lee Iacoccoa, former president of Ford and later turnaround
boss at Chrysler, once wrote that he could trim 10% out of
any budget anywhere without any noticeable pinch. Most of
our household budgets have a lot more fat in them than a
lean-mean business budget.
Trimming expenses means evaluating expenses in view of the
fact that every cut you can make will increase the amount
of money you get to keep for yourself. If you spend $40 on
a cell phone, $45 on cable Internet, and $90 for cable TV,
you are spending $175 a month for those services. If you
could consolidate them and get the whole package for $99 a
month, you get to keep $76 for yourself.
Most people who are spending that way don't bother to save,
because they don't think of that $76 as something they
could rightfully keep. And don't just think $76. In a year,
that's $912. In five years, it's well over $4,000.
One way to cut the fat out of your budget is to look at
everything you spend and see where there is overlap (are
you a member of two gyms? Do you have too many phones?) or
ways to consolidate services into packages that offer
better deals.
But that's just the beginning. Look at other things you
spend and start to see where you can whittle down the
spending. For a lot of people, food is a huge item on the
budget. Eat out less often and you'll save money. If you
already eat mostly at home, start cooking more from scratch
and less from packages and you'll spend less.
The famous "tightwad" Amy Daczycn (Tightwad Gazette) once
wrote that the food budget was one of the areas where
frugal masterminds could keep exercising continuous
improvement. Almost everyone can cut expenses here.
Strangely, some of these cost-cutting efforts will result
in better, healthier eating.
Can you reduce what you spend on utilities? There may be
ways to use less air-conditioning or reduce your water
bill-without your even noticing!
Look at other areas where you spend a lot. Clothes can be a
huge expense, particularly if you're outfitting lots of
school-age kids, but if you can deal with the garage sale
scene, you can cut your clothes bill to a tenth of what it
used to be. Granted, working the garage sale circuit takes
time, nerve, and the ability to get up early on weekends.
Some people dislike the whole notion of the garage sale
wardrobe and I certainly don't advocate buying all your
clothes used. But if you can get a decent pair of jeans for
$1 or some gardening shorts and tees for a quarter apiece,
why spend more? Kids outgrow their clothes so quickly that
most families are quick to use hand-me-downs. Garage sales
just expand the hand-me-down universe!
If you just save for saving's sake, you can end up getting
burned out quickly. You need to figure out a way to "count"
your newfound wealth. If you've got debt, funnel your
savings as quickly as you can into paying down
high-interest loans. If you're debt free or close to it,
you may want to take your savings and put them in a savings
account. For instance, if you've figured out a way to trim
about $30 off your electric bill and $50 off your food bill
and $20 off your cell phone bill, take that $100 and put it
aside. Use it to fluff up your savings account or start a
specific savings fund (for college, a new car, or whatever
you figured you were going to take out a loan to get).
If you play the lottery, here is a great and easy way to
start saving. I once worked with a bunch of folks who
bought group lottery tickets for $5 a week plus many of
them kicked in another $5 a week for a football pool. Lots
of my colleagues were throwing away $10 week in, week out,
with little return and a lot of good humor.
I started to do the same, except I didn't go in on the
lottery or the football pool. I took $10 a week and put it
in a jar at home. I put my money in the jar every Friday
night, faithfully, and in a year, I had over $500. I used
that to help fund my vacation that year. The idea that I
was visibly saving the money and had a purpose mapped out
for it made it not only easier to save, it got to be fun.
Earning more money is always a good way to increase your
wealth, but most of us ramp up our spending as our income
goes up. Reducing your spending is a great way to increase
your wealth and, best of all, you have a lot more control
over how much you spend than you realize.
You can even get radical and decide you don't need cable
TV, a lawn guy, or designer handbags. But even people not
prepared to make a major overhaul in lifestyle can still
reduce about 10% of their household budget and not even
miss it. If you earn $50,000 a year, that's $5,000 more in
your pocket in just a year!
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you could manage lots of smaller debts better, check out
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