A big lesson I’ve learned in my journey towards debt freedom is that expenditure is everything; it is so much more important than income.
A year ago, my partner and I maintained a pattern of living like kings on payday and paupers the rest of the month. Even though our bills were pretty level with our income, we would have usually splashed out on payday with a takeaway and some new clothes, because there was money in the bank. Obviously, I was always in debt by the end of the month.
This vicious circle applies to many, because as our incomes grow over time, so do the size of our homes, the cost of our cars and the price tag of our lifestyles. Regardless of our income, we sign up for purchases and accumulate monthly repayments. We do this repeatedly until there is no spare income to pay for them. We continue until we get into debt. Where does it end?
There is certainly a lot of merit in upping your income, and I know plenty of people who are in pursuit of this, such as through overtime, a side job, or looking for a new role with a salary bump. But many are still in debt, because often, increasing your income just means increasing your spending. Unless you are prepared to allocate your excess income to your debt or savings, the only thing it will achieve is more spending. Therefore, wealth depends on what you spend, not what you earn, and focusing on your expenditure is key to your financial freedom.
To take control of your spending you can start with monitoring your expenditure over time, or use banking records to figure out where your money is going. I guarantee that if you haven’t monitored this previously, you’ll be surprised by how much you are overspending in some categories.
Once you have an understanding of what you are spending, you can now start plotting your expenditure into a budget, which will allow you to figure out whether you have a surplus or deficit at the end of each pay period.
If you have a surplus, but also find yourself in your overdraft each month, then you need to figure out why this is the case. Most likely, there are reasons or triggers that will explain why you overspend unnecessarily.
If you have deficit, you will need to start reducing your expenditure in the areas you overspend, or upping your income and putting all of this money towards your bills or debt.
The good news is that there are many ways to cut your expenditure and achieve financial freedom from debt, and the better news is that with financial freedom comes a much better way of life. Actively dictating your expenditure is the first step to getting rid of debt and building wealth. With that in mind, here’s a whole host of fantastic suggestions from ShoestringCottage.com, on their fifty shades of frugal– giving you lots of brilliant tips for life on a budget.
Good luck budgeting and remember, when it comes to finances- take control and the rest will fall into place!