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Spending less than you make - it works

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  • maat55
    replied
    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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  • wincrasher
    replied
    My operating budget is 31.8% of my take home. The rest goes to savings and toys.

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  • disneysteve
    replied
    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).

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  • buildmybudget
    replied
    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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  • kork13
    replied
    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.

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  • Ima saver
    replied
    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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  • msmorrisonspeaks
    replied
    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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  • PennySaved
    replied
    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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  • Murtaza
    replied
    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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  • Alex_Adviser
    replied
    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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  • red92s
    replied
    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.

    Leave a comment:


  • am_vanquish
    replied
    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"?

    Leave a comment:


  • rc1078
    replied
    What if you lose your job, or hours are reduced. You burn through your savings and your rent is higher than you make?

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  • creditcardfree
    replied
    Thanks for telling the story! One never knows what circumstances may change in the future that can positively affect you in the future.

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  • Sonja
    replied
    A clever story! And I would add my own "recipe" to it. Try avoiding any loans! If you want to buy something, start saving up for it. Put the money in a bank little by little if a large sum is needed. But do not borrow, because the interest on advances can sometimes be twice as much as the purchase itself!

    Leave a comment:

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