If you don’t have it, you want it, and if you have it, you want even more. Love it or hate it, if you want to be successful you’ve got to think about money. But if money is the source of all your woes, how can you change it into something that works for you?
If you want money to stop slipping through the cracks of your attention, you’re going to have to take a good look at the role it currently plays in your life. It was Charles Dickens who wrote, in his novel David Copperfield, “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” In other words, if you’ve got more money coming in than going out, you’ll probably be fine, but if you’ve consistently got more money going out than coming in, you’re on the road to ruin.
The only thing for it, then, is to put on your responsibility hat and start managing your money.
A Simple Rule
We know that if you want to change your weight, you use a simple rule, Calories In, Calories Out. Similarly, if you want to change your financial situation for the better, there’s just one thing you need to know: Money In, Money Out. More money in than out, and you’ll get richer. More money out than in, and you’ll get poorer. That’s the only rule that matters.
Applying Money In, Money Out
How can we apply Money In, Money Out? Well, before you can start taking action, you need to figure out just how much you’re earning and spending. For one month, keep a record of everything you earn from any source: a job, self-employment, interest on savings, gifts from relatives, anything. At the same time, record EVERYTHING you spend: groceries, bills, debt payments, spending on hobbies, spontaneous shopping, that random chocolate bar you buy each time you walk past the corner shop. Everything, even if you think it’s something small and inconsequential. If you miss something out, you’re not going to have an accurate record.
Once you’ve done that, cross out anything from the earnings side that’s not regular income (say, if you won a prize on the lottery), get out your calculator, and add up the totals. Ideally, the income side is a bigger number than the spending side – and the bigger the difference, the better off you are. That difference is your monthly savings rate, and you should either put it towards paying down debt, put it in a savings account, or invest it.
Now that you know where you’re starting from, if you’re not happy with your savings rate, there are two ways to make it bigger: spend less, or earn more.
Shrink Your Spending: Money Out
On the Money Out side of the Money In, Money Out equation, saving more money means shrinking your spending. How easy this is will depend on how much of your spending is on necessities, and how much is on luxuries. Here’s a few starter ideas for reducing spending:
Learn to live without some of your luxuries, such as regular fancy coffee or expensive dinners.
Downsize your car or house to one that’s cheaper to run.
Stop buying so much clothing, plastic crap, and games you’ll never play from online shops. Install an internet blocker to block the shopping sites if you need to.
Shop around for better deals on your energy rates and other bills.
The less money you spend each month, the less money you need to earn each month to be in profit. There’s no need to be too harsh on yourself, but you can definitely learn to be comfortable with less.
Increase Your Income: Money In
What about Money In? Well, for the In part of Money In, Money Out, you want to do things that bring you money. It’s actually easier than you think to get more money coming in, provided you put in the effort. Here are some possible opportunities:
Ask for a raise.
Improve your skill set and leverage that into getting a better job.
Start a side hustle as a freelancer, consultant, or entrepreneur – or, if you’re already self-employed, take your business to the next level.
Sell the junk you own but never use on eBay or Craigslist.
Put your savings somewhere that pays a higher rate of interest.
All of these things take at least some work, but it’ll be worth it when you have more money coming in. It’ll give you more leeway if you need to buy something more expensive, allow you to pay down debt faster, or let you turbocharge your savings rate. Just keep your eyes open for opportunities, and you’ll find yourself noticing them more and more.
The Big Picture
The best tactic, of course, is to combine everything you’ve learned, and optimise both sides of Money In, Money Out. Do this, and soon, your bank balance will be looking much healthier. Then, you’ll be able to use your money as a tool to help you achieve the things you want. It’s as simple as that.