Frank Yan of Sacramento on Spending Less Than You Earn

Frank Yan mentions that one of the most important factors of life and principle to becoming wealthy is to spend less money than you earn. This may sound easy, but in practice it can be very hard to do. Frank Yan has experienced this article and will explain what to look at and the challenges to spending less than you earn and offers some tips to overcome these.

First Frank Yan wants to look at those who may spend more money than they earn. It stands to reason that if someone is spending more money than what they earn, they are either being given the money or are borrowing it, such as credit. In this day and age of worldwide economic growth and prosperity it has never been easier than before to borrow money. Temptation to borrow is everywhere, whether it is for a new TV, a new car or a new house. In Sacramento personal debt levels are at record highs. With foreclosures at an all-time high, delinquent State deficit, and the average Joe shopping for a high priced vehicle at the Sacramento Auto Malls. Frank Yan has read that the US Federal Reserve has calculated that more than 45% of US families spend more than they earn. Not good…


The problem with our personal debts is that it can become a bad trap. Bad debt for example and how you can be trapped by this bad debt can be seen with probably its most and popular common form – Credit Cards. Ideally, people should ensure to pay off their balance in full by the end of the interest free period to avoid paying these high interest rates set on these credit cards. It’s quite common and sad that people use their entire credit limit and make only the minimum payment required as a lower payment is an attractive number so people can assume to live a more comfortable life without any financial stress. This minimum payment is the worst and is usually just enough to cover the interest charges only. Combined with a high interest rate this makes credit cards a very expensive form of borrowing.


There are also people who spend equals to what that they earn. If someone is spending everything they earn, it is obvious they are not saving anything or investing any of their earnings. This bad habit will make it very hard, if not impossible, for them to become wealthy in the future. It also means that they will more than likely need to borrow more money in the down the road to fund larger purchases. And so… The debt financial trap begins…


Develop Your Financial Discipline and Intelligence
Let’s return to Frank’s earlier example of credit card disaster. First question would be do you really need one? The emergency of Mastercard/ Visa debit cards and including Paypal has eliminated some of the benefits that credit cards traditional have Example: The ability to make purchases over the internet or telephone. If you do decide you still want a card, you will often be tempted with a higher credit limit, higher than you would have expected. Remove the temptation. By reducing the limit to one where you wouldn’t be scared if the card reaches its full limit. As mentioned earlier, ensure you pay off your balance in full each month to avoid paying these high interest percentages and building up a large amount of debt.


Reduce Your Spending Consumption
First step here is to identify and to eliminate conspicuous consumption. What Frank means is the buying of things you don’t need or want. Second thought is, distinguish your wants from needs. As you begin to identify things as wants, you will reassess whether or not you really want to spend your money on that purchase. Last thing is, set some short to long term financial goals. Use motivation to control your immediate consumption of spending. Example, which you want to go for a well-deserved away from Sacramento vacation across seas in your short term goal. You will find it far much easier to resist purchasing that new item you saw if you can associate this with the goal of an overseas get a way.


Bringing These Two Solutions Together
The best way to bring these two solutions together is financial discipline and controlled consumption. Start to budget and live by it. A budget is simply a plan that allocates your future income towards expenses, savings and debt repayment.


If you don’t like the idea of creating a budget, a simpler way to ensure you spend less money than you earn is to Pay Yourself First. Set up an automatic system to Pay Yourself First. Avoid paying for purchases via your credit you can relax knowing that you are spending less money than you earn.


If you are struggling with debt and/ or excessive consumption of spending, be clear that spending less money than you earn will involve some short term sacrifices and lifestyle changes. These changes will be way more positive as you begin to take control of your finances sensibly and putting yourself on the road to wealth.