Whenever I’m on a road trip and I don’t happen to have an audiobook or a podcast available, I’ll spin the radio dial and listen for something interesting. I actually really like local radio shows that cover things that are actually going on in that area, so I’m usually seeking out things like that.
One thing I often hear as I’m spinning the radio dial are advertisements for all kinds of things: local restaurants and car dealerships and so on. I usually keep turning the dial, but for some reason, I always stop on the ads talking about people’s money.
You’ve heard them – they’re the kinds of ads that talk about getting out of debt really quickly or building wealth quickly or things like actually turning your debt into wealth.
I’m always amazed at the incredible claims that these programs make. They really do make it sound like all you have to do is sign up for this program or go to this seminar and suddenly all of your financial problems are solved.
The thing is, all of them are usually selling some minor variation on the same plan. It’s a super simple financial plan that I absolutely guarantee will get you out of debt really quickly and help you start building wealth faster than you know it. All you have to do is start following the plan.
Here it is – the core secret behind all of those “get out of debt quick” and “get rich quick” plans that sound enticing on the radio. Are you ready?
Spend less than you earn, make that gap as big as you can, and do something smart with that gap.
That’s it. That’s what every single one of those programs boils down to, with the “do something smart” varying a little bit but usually starting with “paying off your debts as fast as humanly possible starting with your highest interest debts.”
The truth is that this basic advice is also at the backbone of virtually every personal finance book you’ll check out at the library, too. Sure, they might vary a little in terms of what “do something smart” actually means, but the overall framework of spending way less than you earn and doing something smart with the difference is the key to all of it.
So, how do you make the magic happen?
You start by cutting your spending hard. That’s what all of these plans will end up suggesting to you, whether they do it subtly and lightly or they push it hard.
As I mentioned earlier, almost all financial plans you read or hear about or watch boil down to you having some freed-up resources to get rid of your debt and start saving for the future. How do you get those freed-up resources? There are two routes – earning more or spending less – and only one of them is immediately available to most people. You can always choose to spend less because that’s a choice you control, whereas your income is usually at least partially out of your control. Thus, cutting your spending is usually the first step, as you have to have some resources to start with.
Don’t get me wrong, there’s no question that earning more is a good thing when it comes to building lasting financial success, but you can’t just flip it on and off like a switch. If you could, everyone would be earning a mint… but that’s obviously not the case. Keep working toward improving your career and your earnings, but don’t use dreams of a big salary in the future as a justification to spend money today. If you want quick results, you’ve got to start with what you have, and what you have is the ability to cut back on your spending.
There are a lot of ways to do this. Switch to buying all store brand items when you go grocery shopping. Start shopping at a discount grocery store. Cut your cable and go with Netflix. Cut your landline. Switch cell phone carriers. Shop around for better insurance. Eat at home more often. The number of things that a person can do in their life to cut spending is practically infinite. You just need to find the things that you can cut hard that have a minimal impact on your life.
If you do that seriously, you’re going to suddenly have plenty of money to stop living paycheck to paycheck and start knocking down those debts rapidly and then, when the debts are gone, start building wealth.
The key to all of this is in the word “seriously.” If your “cuts” add up to stopping at Starbucks one less time this month, you’re not going to see any change in your life for a very long time. You have to cut and cut hard.
Every time you see a little extra in your checking account from those cuts, start paying down a debt. Start making extra payments on your highest interest rate credit card, as big as you can make them. When that’s gone, move on to the next one. When they’re all gone, celebrate… but keep going, because now you have the opportunity to build wealth. Start throwing a lot of money into your 401(k) or your Roth IRA. Start saving for a home. Start saving for whatever your goals are.
It is that simple. It’s kind of like magic. Just get a grip on your spending today and keep that grip and you’ll be in far, far better financial shape down the road.
If you’re sitting there thinking to yourself that this is obvious, you’re right. That doesn’t change the fact that 78% of Americans live paycheck to paycheck and much of the remaining 22% have some form of debt.
It might seem “obvious” and “simple,” but if that’s true, why isn’t everyone doing it?
It’s because although the strategy is “obvious” and “simple,” it’s hard to actually execute. It’s easy to talk the talk. It’s much harder to walk the walk.
If you can just start doing it, though, your life will change. If you can manage to spend less than you earn paycheck after paycheck, month after month, year after year, you will see profound changes in your financial life. Your debts will melt away like ice cream on a hot summer day. Your account coffers will start growing like a hungry twelve year old.
All it takes is spending a little less and sticking with that change, and then, maybe later, earning a little more. Then, take that money you’re not spending and that extra money you’re now earning and do something smart with it. Be patient and keep doing that and your life will change.
It’s amazing how something so simple, something that virtually anyone can do, can have such profound results, but that’s exactly how it works.
I should know. Several years ago, I was in debt up to my eyeballs, living in a tiny apartment, with tens of thousands of dollars in student loans, two car loans, and three maxed out credit cards. Today, I own my own home and have zero debt. The first step I took – and the only change I made in the first couple of years when I was making the debt vanish – was to simply cut back on my spending, cut back seriously, and stick with the cutbacks. That’s it. Eventually, I figured out how to improve my earnings a little, but by then, the snowball was already rolling down the mountain.
See? It’s magic. And you can do it, too. All you have to do is move from thinking about it to doing it.
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