SALLTYE - Spend a Lot Less Than You Earn

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Personal finance is boring!!

From the outset, personal finance is exactly that - boring. A mundane administrative task that nobody wants to do. Most of us sit in front of spread sheets all day at work - why would we want to come home and start again? We all have different financial situations, but in the purest and simplest form personal finance is not exciting. Personal finance essentially involves taking a high-level look at your finances; a process of checking that you pay bills on time and (in general) spend less than you earn. I'll say it again, the fundamental rules of personal finance are SIMPLE!

  • Ensure that you have enough money in your accounts to pay said bills
  • Ensure that you can keep replacing the money in the accounts so that it will never run out
  • Diversify the replacement methods such that if one fails, you have backups
  • The fundamental principles of personal finance are remarkably easy... even an idiot can understand them; Spend Less Than You Earn. A Lot Less! Unfortunately, as easy as that may be to understand, we live in a world that is trying to trick us. From lucrative advertising that is trying to make us all fall in love with the latest gadget, to the easy availability of credit... they system is trying to catch us.

    The System is Trying to Smash the Equilibrium

    People run into financial trouble for a number of reasons. The high-level view is simple. The required spending does not equate to the income (for some reason or another). Whether it be that the spending increases to a level that the earning simply cannot compete with, or the earning capacity suddenly reduces or even stops altogether; the principle is the same:

     

    The spiral is so easy to get into and so very difficult to get out of - a single loan can start a chain reaction - and if you are not careful, may never let you go. The Butterfly Effect From a young age, we are tempted with lines of credit - 'free money' - which flicks a switch inside our heads. It feels so damn good to buy things and especially without having to go to the effort of working - putting in the graft - beforehand. Subconsciously, we put the associated negative feelings of owing money to one side and continue down the glorius path of spending. We 'treat' ourselves to a new item of clothing, or a night out with our friends to celebrate an unknown occasion. All this time, trying to keep those negative feelings of debt on the sidelines, in the backs of our minds.

    It Can't Be That Bad... The Banks are Offering me More Money

    Wrong. The banks will continue to lend us money the more we go into debt. We suddenly fit the profile of a dream customer and an analyst has predicted that we have the potential to end up paying a lot of interest. I would go as far as to say that if the banks are offering you interest free credit or to extend limits, then it is a warning sign that you may be getting into trouble. You see the thing is:

    If we were all responsible and paid our credit card balances in full each month, the banks would not make money from them. In fact, the banks would start to lose out so badly that they wouldn't be able to afford to offer the same attractive rewards and cash back deals that are available today. Those of us who do pay back what we owe in full are being rewarded by the misfortune of others.

    Make the Change

    What I am essentially saying is that not everyone will pay of their debts and become financially responsible - but you can. Not everyone will get this message - but you did. Not everyone will pay attention - but you might. It is about time that you started benefiting from the Perks, rather than funding them. You need to start by Making Personal Finance Exciting. You need to realise that the spreadsheet that you have (or don't have) at home is the most freaking important spreadsheet in your life. You need to take responsibility and finally start realising that you need to SALLTYE - Spend a Lot Less Than You Earn.... The lesser the better.   Do you know anyone that doesn't follow the SALLTYE principal? Any EXTREME examples? image credit - moneysavingexpert