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Spending less than you make - it works

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    #16
    Originally posted by Inkstain82 View Post
    Human beings aren't inherently rational, we have a lot of cognitive biases to overcome.

    Here's a few that tend to get people in the most trouble financially:

    Hyperbolic discounting - Wikipedia, the free encyclopedia
    Loss aversion - Wikipedia, the free encyclopedia
    Pseudocertainty effect - Wikipedia, the free encyclopedia
    I found those links to be fascinating. Does anyone have any other fun sources for behavioral ecnomics or "prospect theory"?

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      #17
      Originally posted by am_vanquish View Post
      I found those links to be fascinating. Does anyone have any other fun sources for behavioral ecnomics or "prospect theory"?
      There are a couple really interesting books out there that have some more information about stuff like this. Freakonomics, The Tipping Point, Blink, Outliers, etc.

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        #18
        Thats a very nice story in deed, I hope that people would be able to gain something from it.

        In my opinion spending less than you earn has a number of advantages which are usually neglected. To point a few of them,
        - You begin eliminating your debts
        - You begin to save
        - Your stress level falls
        - You are now able to explore possibilities closed to you before
        Last edited by Alex_Adviser; 06-24-2009, 11:32 PM.

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          #19
          It is obvious that you should spend less than you earn but the trick is that you should do it as soon as possible because if you are under debt due to your excessive spending then it will become very difficult for you to get rid of those loans.

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            #20
            Nice job! Having "breathing room" is so incredibly important. The stress that it reduced in your life is a great example.

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              #21
              Originally posted by Inkstain82 View Post
              committing to the simple plan of setting a budget and spending less than you make can turn around even the worst financial circumstances.
              I respect your post. You are so right when you say "...committing to the simple plan of setting a budget and spending less than you make can turn around even the worst financial circumstances". Right! Spend less than you earn. While this seems obvious, Americans are notorious for doing just the opposite. Stop spending and start saving.

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                #22
                It also does not really matter how much you make, it matters how much you keep. (save) Live on less than you earn.

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                  #23
                  I'm going through this right now as well... Both of my roommates are in the process of moving, and I'll be staying here for an extra 3-4 months. So my rent, utilities, and food expenses will no longer be shared, growing my monthly expenses by over $700/mo (18% of my gross income).

                  Thankfully, I've been saving/investing about 32% of my gross every month, so I can absorb the greater expenses without significant impact. I've stopped my regular savings, slowed down my house savings, and am leaving my retirement savings almost untouched. Once I move and get into a smaller, more affordable place on my own, I will be able to go back to my former aggressive savings plan.

                  Just wanted to give another example -- I've been living on ~68% of my income. With my expenses going up, I'll now be living on ~88% of my income. LIVING ON LESS WORKS. Even with a fairly significant change in my finances, I'm able to cope with it without much issue.
                  "Praestantia per minutus" ... "Acta non verba"

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                    #24
                    That is a great story. It's amazing how much a little advice from a close family member can help. The key to building a strong financial foundation is to spend less than you make--and from there the sky's the limit!

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                      #25
                      Originally posted by kork13 View Post
                      I've been saving/investing about 32% of my gross every month

                      I've been living on ~68% of my income.
                      That's terrific, and remember, that doesn't count taxes.

                      Personally, about 30% of income goes to taxes and health insurance premiums. Another 21% goes to savings. That means we actually live on about 49% of my gross income. My wife does work PT but 50% of her gross goes to 401k and after taxes, her take home is minimal (about $50/week).
                      Steve

                      * Despite the high cost of living, it remains very popular.
                      * Why should I pay for my daughter's education when she already knows everything?
                      * There are no shortcuts to anywhere worth going.

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                        #26
                        My operating budget is 31.8% of my take home. The rest goes to savings and toys.

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                          #27
                          Dad was using Dave Ramsey logic. My guess is that your lifestyle reduction went un-noticed due to the enjoyment of positive gains. Great job.

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