Looking at Debt Backward: An Interesting Approach to Financial Freedom
mandy [at] leqmedical . com
Which is easier? Making more money or spending
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
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
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
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
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!
If you're faced with overwhelming debt or just believe that
you could manage lots of smaller debts better, check out how to consolidate
debt at http://www.debt-consolidation-diva.com
Published - June 2008