I shared that the problem was a focus on the wrong thing (the appearance of accumulated wealth) instead of the far more wealth-producing opportunity, cash flow. I also pointed out that people simply cannot save their way to wealth.
In this blog post, I want to talk about how you can optimize your cash flow on your way to achieving the American Dream by spending less.
Cash flow optimization technique: Reduce expenses
If you are finding money to be a little tight right now, one of the fastest ways to improve your situation is to reduce expenses.
Now, I'm not here to tell you how you should live your life and what you can and cannot live without. You know better than I do. But if you are facing challenging financial times, it's worth examining your expenses in-depth. Do you need all those tiers of satellite or cable TV? Do you need the latest iPhone? Do you need that daily latte from Starbucks?
Remember this: Every expense you pay actually costs you more than you think it does... because you're spending it with after-tax dollars. Let's say you want to spend $5 on a latte from Starbucks. Well, in order to get that $5 in your paycheck, you had to earn $8 or $9 and some of it was skimmed off by various levels of government so that you are left with enough money to buy your latte. End result? That $5 latte actually cost you $8 or $9. Are you sure you still want to drink it? (This changes as you become better at reducing taxes... but that's a blog post for another day).
You have good expenses and bad expenses, like good cholesterol and bad cholesterol. Make sure you cut the bad expenses but NOT the good ones. For example, you will want to keep your autoresponders (that’s a good expense). Bad expenses take money out of your pocket with no indirect cash to you. Good expenses put money into your pocket. (Seems confusing? Don't worry, I'll talk about this in future blog posts).
Reducing expenses is not going to make you a wealthy person. (As I said, you can't save your way to wealth). But it will help in one particular aspect: Most people's cash flow is "out of whack" – their income is equal to or less than their expenses. By focusing on reducing your expenses, you can ensure that your cash flow has more money flowing in to you than out from you.
Here's what to do right now
I'm about to show you a way to take a HUGE step forward in your journey toward wealth and success. The problem is, only a few readers are actually going to take action and do something about it while the rest of you will think "that's nice" or even "that sounds boring" and then close this window on their computer and move on to something else.
Take a few minutes and write down all of your expenses in a month.
- Start with the bills and invoices you get each month. Those are predictable and easy to find.
- Move on to the expenses you know you have (even if they are harder to calculate). For most people, it's fuel, food, coffee, and entertainment expenses.
- Third, dig deeper and see if there are other expenses you aren't thinking of: Think about fees and membership dues and lottery tickets and chewing gum.
Add it all up and compare it what you bring home in your paycheck. You'll likely find one of three things:
- You'll discover that your expenses exceed your income and you need to do something fast.
- You'll discover that your income exceeds your expenses… but you can't figure out why you haven't been saving the difference and you're not sure where it goes.
- You'll discover that your income easily exceeds your expenses and you've been putting money away. (Stay tuned to this blog because when I say "putting money away" I probably mean something way different than you think).
Chances are, you fall into one of the first two categories. (But if you're one of the rare few who are in the third category, good for you for having the first step out of the way). No matter what category you are in, you will LOVE what I'm about to write in my next blog post.
Your bad expense-eradicating friend and mentor,
Mark Evans DM,DN
PS Don't misunderstand: There's nothing wrong with having some expenses. And it would be impossible to live life without ANY expenses. But you need to be aware of what each expense is in your life and you