Tuesday, January 7, 2014

How To Get Rich - Reduce Your Cost of Living

Do you find that you have no money left over after paying your bills ?

Do you really need to spend so much to enjoy your life ?

Overspending is one of today's most troublesome addictions !

Know Where All Your Money Goes

One of your first basic steps to building a secure and wealthy future is to know how you spend your money today. A good way to do this is to write down every purchase you make over a one month period. When I say this I mean everything, even your morning cup of coffee or two or three.

By doing this simple exercise you will be making yourself more aware of where all your money goes. This increased awareness may be all it takes to identify what you spend too much money on.

Organize Your Data  

Once you have everything written down you need to add up all the different categories for the month. For instance, how much you spend on your morning coffee for a month. how much you spend for lunches, for dinners out, for movies and entertainment, etc etc etc.

If you add up all these purchases and it totals more than you bring home, you have a serious problem. If the totals add up to the same as what you bring home, this is still not good. Ideally, you should be spending less that 90% of the money you bring home. Preferably much less.

Look For Ways To Reduce

Depending on the results of your above exercise, you may have to make a few conscience decisions about ways to reduce your cost of living. You will not be able to survive too long if your expenses are greater than your income. Bankruptcy or financial despair will only be a matter of time.

If your expenses are greater than 90% of your income, you are treading on thin ice so to speak. If an unexpected expense should come along, this may do you in. What will you do if you have a major bill or obligation to pay ?

Reduce and Build

The way to build a secure financial future is to reduce your expenses to well below 90% of your take home pay. You can then save this difference in a bank savings account to build an emergency reserve. This will become your financial cushion to help offset any sudden unexpected expenses that always show up at the worst of times.

Ideally, your reserve should be build up to a value of between three and six months of your take home pay. This amount should always be maintained at this comfortable level. Once this is achieved, any extra funds can start to be saved for investing. These investments will some day give you even more financial security and provide you the opportunity to realize your dreams.

What To Do    

Reduce your cost of living to well below 90% of your current take home income. Save this difference to start building your emergency reserve. Once reserve is reached, direct all extra funds towards saving for future investments. Your financial security is really that simple. The hardest part is curbing your temptations for overspending. You must be determined in order to reach your financial dreams.

As always, I welcome your comments and suggestions for future topics.

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