Spend Less Than You Earn and Get Out of Debt

Dolla' dolla' billz, y'all

Dolla’ dolla’ billz, y’all

Money issues are the source of a lot of our stress and problems.  Especially if you have joint finances with a spouse.  Here’s an article from the New York Times with research that suggests what everyone with a brain already knows: finance-related tensions raise the risk of divorce.  Here’s one from About.com’s ‘Divorce Support’ section that lists “Economic Tensions” as one of only four valid reasons to divorce your spouse.

But even if you aren’t married and worried about someone else, money is still a big stressor for most of us.  In this article I’m going to offer you some good advice that also happens to be common sense.  I know that in some circles it’s rude to talk about money, and it can be a touchy subject, but (unless you have oodles and oodles of money) having a financial plan is absolutely required for long-term happiness, so here goes.

The advice: you should always spend less money than you make, and you should save at least 10% of your take-home pay every single paycheck.  The earliest published version of this advice that I’m aware of comes from the 1926 book “The Richest Man in Babylon,” by George S. Clason.  The book is well-written and short (about 70 pages).  If you’re interested, you can read the entire book for free as a pdf here.   Since then, this advice has popped up in many, many books and blogs on finance.  You’ll find a smattering of links at the end of this post if you want some further reading on the subject.

Being in debt, at least for me, involves a lot of stress.  I hate feeling ‘underwater’ in my finances, and my quality of life goes down when I feel like I’m not making progress financially.  So how do you pay off your debts?  By spending less money than you earn, and applying the difference to savings and paying off debt.

Now you might think this sounds like common sense.  That’s because it is.  However, we live in an over-leveraged, instant-gratification, YOLO type of world.  And every day people are adding more and more debt to their lives.  Now, all debt is not created equal.  For instance, having a $100,000 mortgage (perfectly acceptable) is waaay different than having $100,000 in credit card debt (absolutely not acceptable).  But let me just give you a quick snapshot of the average American as of April 2013, according to prweb.com’s article found here:

  • Average household credit card debt: $15,422
  • Average student loan debt: $34,703
  • Average mortgage debt: $149,782

Seriously.  Let that sink in for a minute….. a little shocking, huh?  Anyway, I’m not trying to cover all of personal finance.  I just want to point out that being deeply in debt is definitely not good for our mental health and happiness levels.  Yet, the average American has a LOT of debt.  Is it any wonder we aren’t very happy as a nation?

The takeaway from this article is the following: you should always spend less money than you earn, and pay off your debts.  Getting your financial ducks in a row goes a long, long way to helping you be a happier you.  Here’s a suggestion* for how you might start to tackle such a seemingly monumental task: start by tracking every single penny you earn or spend for an entire month.  I mean if you find a penny on the ground you write that down.  If you give a quarter to a homeless person you write that down.  Every. Single. Cent.  At the end of a month you might be surprised to find out where all your money is going, and hopefully it will give you some ideas about where you might save some money.

So I hope this article prompts you to take a closer look at your finances, but this isn’t a personal finance blog, so I’ll leave the topic mostly to the professionals.  Here is some recommended reading on the personal finance tip:

*This suggestion comes from the book “Your Money or Your Life,” by Joe Dominguez and Vicki Robin.  It’s a good book, and I recommend it if you are feeling like your personal finances are getting out of control.

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