Personal finance advice is endless, sometimes confusing, and often intimidating. Most of it won’t apply to you and your current situation.
But there is one truth that does apply to everyone: You have to spend less than you earn.
If you don’t spend less than you earn, nothing else matters. None of the books you read or the podcasts you listen to will help.
Spending less than you earn couldn’t be an easier concept to grasp. But that doesn’t mean it’s easy to put into action. For millions of people, spending less than you earn is an ongoing challenge.
If you are struggling to spend less than you earn, here are three ideas that will help.
Build a budget
Planning how much you are going to spend before the month starts is the best way to spend less than you earn. First you have to know how much you earn each month (do you know?). Then you’ll need a detailed plan for how you will spend your money.
Without a plan to spend less than you earn you are leaving the results to chance, impulse buys and anything else that jumps out in front of you throughout the month. Plan to spend less than you earn and you are far more likely to actually do it.
Track your spending
Seeing where your money is actually going is a huge eye opener, in a good way. It’s impossible to know where your money is going each month without tracking it. Once you track your spending, you’ll likely find several places you can easily cut back. Doing so will increase the gap between what you earn and what you spend.
There are several tools you can use to track your spending. We use Tiller (howdoimoney.com/tiller), a program that links up to your bank account and organizes transactions using Google Sheets. Other money management websites include mint.com, youneedabudget.com and everydollar.com.
Calculate your net worth
List your assets and subtract your debts to find your net worth. Tracking your net worth each month lets you know if you are moving in the right direction or not. Watching your net worth grow can be incredibly motivating and will provide confirmation that you are spending less than you earn.
Spending less than you earn is the first step toward getting your financial life moving in the right direction. It’s a requirement; all other progress is impossible without it.
If your finances still feel messy after you’ve completed these three financial tasks, that’s OK. Just keep moving in the right direction. Your net worth will thank you.
Go get ‘em, Tiger!
Derek and Carrie Olsen are monthly money columnists for Ink challenging you to take a closer look at your finances. For free resources on building a budget, tracking your spending, and calculating your net worth, visit howdoimoney.com/store.