Why spend less than you earn? If I had to choose the most important, the most critical principle in personal finances that would have to be “Spend less than you earn”. If you live by this simple rule, you get richer. Every month you have a sum of money, which you can use to increase your savings or pay off debt, in other words, you raise your net worth. On the other hand, each month ended with larger expenses than earnings, worsens your financial situation and causes that you grow poorer. Such a situation, if it’s repeated, leads first to run out of savings, and then to the spiral of debt. There is still a third possibility, probably the most common, which is living from paycheck to paycheck. In this case, there are months when you go too far, then take the cash credit, for some time you grit your teeth and pay it off, and somehow balance is maintained. You neither get richer, nor getting poorer, just standing in one place. If you’re healthy, have a job, then such a state can last for years, but as soon as something goes wrong in your life you very quickly fall into trouble. Most people do not have any savings for a rainy day and probably also a credit to be paid. You start to save yourself by taking credits that you pay off by signing the next ones, etc. and the situation becomes serious.
Spend less than you make
The philosophy to invest the difference. If you spend less than you make then you generate financial surplus every month. Regular financial surplus is your ticket to independence and freedom. As the old Chinese proverb sais: “Even the longest journey begins with the first step”. The first step in the case of personal finance is to achieve a situation in which your expenses will be smaller than your earnings. Then you only need to sensibly and systematically invest what’s left each month. There are so many people and so many ideas on what to do with the extra cash. Some will allocate money for retirement or pay off debt, and others will invest in the stock market or real estate. There are many roads to financial freedom, however, they have a lot in common: regularity, caution, taking a moderate risk. All this over a number of years, without haste, by taking advantage of the benefits of compound interest, have to lead you to your financial freedom. But remember the first and most important step on your financial road: spend less than you earn!