You fill find plenty of articles, books and even courses on budgeting, investing and saving money. It can seem overwhelming. Even apps that claim to simplify the process of saving money can take hours of work!
Bit it doesn’t have to be that complicated. Here is a very simple rule to set your finances in the right direction. It’s a great place to get started, and just following that rule will get you 80% of the way to succeed with money.
This is a single piece of advice that I consider to be the #1 rule of financial success that I think every expert would agree on.
The #1 Rule: Spend Less Than You Earn
It’s that simple. But the key is how to make it happen, so read on!
Most people know what they earn. That’s easy. But do you know how much you spend on average every month? If I am spending more than I earn on most months, how am I ever going to 1) pay down debt, 2) save money for emergencies or a down payment, 3) have extra money for retirement. or…. 4) pay for that special thing that’s really important to you, without adding more debt burden?
This rule is simple, but effective: of you know how much you spend per month, you know how much you can save or invest.
So what’s the best way to spend less than you earn?
1. Know your monthly income
At my job, we help people with their finances, and it’s surprising to see how often people truly do NOT know their monthly income or even what gets deposited in their bank accounts. This is difficult if you have an income that fluctuates from month to month, but you should still be able to use an average from the last few months. And you should know what that number is. That’s an step 1.
If you don’t know your monthly income yet, login to your bank account and look at your transaction history (Or look at your paycheck stubs). You will be one BIG step closer to money success once you know that number.
#2 Know your average monthly spend
Ok, this is getting a bit more challenging, but you can do it! If you want a step by step guide, you can read my post to learn about the simple way we track our spending. You can also use my free “Expense Tracker” printable below (see image preview). It’s a very simple tracker, but can help a lot!
You can go with a simple method like my spreadsheet or my expense tracker, or with an app that helps automate things for you (For example, “You Need a Budget App” which is free for 30+ days). If you don’t know yet how much is going out of your account and where it is going, don’t panic! Track your expenses for just 1 month.
You can simply collect receipts, look at your online banking transactions or use an app. It doesn’t really matter how you do it, as long as you do it and do it consistently.
#3 Come up with a plan for your spending
When you have completed the first two steps above, and know how much you earn and how much you are spending, you will be able to make sure you don’t spend more than you earn.
That is the key to being able to get ahead financially!
Have you ever gotten to the end of the month and have no idea how your income all went away!! This is not a nice feeling, right? When you track your expenses, you will know exactly how much is going out of your account and where it is all going! You will then be in a great position to make a plan to decide how to spend your money and how much you should save (check out our $1500/month budget).
I feel so stressed when I don’t know how much money we are making or how much I can spend on groceries. Or worse if we have enough money to pay it all including the next payment on the credit card bill.
The best way for me to stress less about money is to have a plan. I feel so much better when I know how much income we have to work with and I can track how we’re spending. When I know that we spend less than we earn, I know that we are at least heading in the right direction with our money, and will be in a great place to continue to pay down our debt/mortgage and save for retirement.
Learn more about coming up with a plan for your money:
- An easy way to create your first personal budget (with a free cute template)
- 6 tips to budget your money when you earn $2,000 to $4,000 per month
⇒ What methods do you use to to track your income and spending?