Spend less than you earn in 2012

If there is a single rule that underlies everything I’ve written about on Today’s Naira, it’s this simple sentence:

Spend less than you earn.

It sounds so simple, doesn’t it? Yet there are many people out there burying themselves in debt (spending more than they earn) or living purely paycheck to paycheck (spending exactly what they earn). Yesterday fuel subsidy was officially removed with a litre of fuel selling within a range of N138 - N200. This is an astronomical increase and it’ll require an effort to save in 2012.

Simply spending less than you earn has a cascade of positive effects.

First, you begin eliminating your debts. Spending less than you earn frees up the money you need to make larger payments on your debts. Over time, they begin to disappear, reducing your monthly bills and giving you even more breathing room.

Second, you begin to save. First, you build up some cash savings in your savings account, enabling you to roll through emergencies (like a car breakdown or a job loss). You’ll also have the breathing room to start saving for retirement, paving yourself a great future for your golden years.

Third, your stress level falls. Knowing that you have fewer debts, your emergencies are covered, and your retirement is being planned for reduces your stress level. You sleep better, your overall health improves, and you feel happier about life.

Finally, you are now able to explore possibilities closed to you before. When your debts are gone and you are spending far less than you’re bringing in, you suddenly have many more career possibilities. You don’t have to stick with your high-stress job – you have the financial freedom to move on and chase your dreams. You can live where – and how – you want to live.

All of that comes back to one basic principle – spend less than you earn.

That statement actually has two parts, though.

Spend less refers to the fact that you do need to cut your spending. The first step doesn’t need to be anything drastic – nor should it be. Many of the more extreme money-saving tips come from people who have already tried out the basic tips and love them, so they seek out more intense strategies to further cut their spending. I do this myself – I’m always trying out new money-saving strategies, discarding the ones that don’t work for me and keeping the ones that do.

Here are five big ways to get started.

First, go through every monthly required bill. Ask yourself if you really need that service at all. Do you really need to take your car to work everyday or could you start a car pooling service with colleagues who live nearby to cover the cost of fuelling the car? With the fuel subsidy issue, I forsee the era of filling up the tank eroding. Also, more people will become circumspect about fuel management. Then, go through each bill and see if there are any optional services you can eliminate. Do you really need a washman or consider the options of purchasing a washing machine and ironing your clothes yourself?

Second, keep diligent track of your spending. Keep a notebook in your pocket and write down every expense you have. The simple process of doing this will make you think twice about unnecessary expenses. When you do have a month’s worth of expenses written down, take a careful look at them. Ask yourself whether or not each of these expenses actually contributed to the value and joy of your life. That process will offer a lot of insight for you as to where your spending is going to waste.

Third, look carefully at your routines. Watch what you do every day (or most days). Are there things you do each day that cost money? Those things are the most powerful ones to adjust, as trimming just N100 from your daily spending saves you N36,500 a year. Do you stop at fast food restaurants each day? Why not cut down your daily order a bit,  or start bringing your breakfast or lunch from home? Do you splurge on Coke every day? Perhaps you can start considering making your own Sobo drink or Chapman twice a week. Look at every regular expense you have.