The second step is to spend less than you earn. If I can do any key in this whole program, this is the secret key: Spend Less Than You Earn. There are basically three categories that I’ve put on this graph; Essential, Discretionary and Unsecured Debt. We’re going to talk about the Essential and Discretionary first, and then we’ll cover the Unsecured debt.
The first essential item would be housing. You need to take a look at your housing. Do you have more house than you really can afford? Should you really be renting instead of owning at this time? Take a look at your housing and see if you really are overdoing it, and that somewhere over time, not immediately, but over time that you could correct that situation.
Take a look at your transportation. Do you really have the correct transportation that you need? Or, do you have a leased vehicle that is far more luxurious than you really need, but you just kind of enjoy them, whereby you could switch. When the lease expires, switch to a much more efficient vehicle that would still serve your purposes, but with a lot less monthly cash flow coming out.
Take a look at your utilities. See exactly what your various utilities are, and whether or not you’re really maximizing your spending in these utility areas. In that, I include the cable, TV, or the DVD, all the satellite dishes; even the energy efficiency of the insulation of your home, where you keep the thermostat, all these things; Because, there's a lot of chance for leakage financially in these areas. It would be a nice little study for the the younger members of your family to decide whether or not it's better to keep the cable TV with the premium channels, or just go to the basic cable; and perhaps rent a DVD from time to time. Switching things up like this if you mind your expenditures, can really save you some money in this particular area.
Insurance. You should review your insurance to make sure you have the essential amount of insurance, but that you’re not over-insured.
Child expenses again is an area you can work with.
Household, food, miscellaneous. There are lots of web sites lots of help about how you can save money on food preparation and these areas.
Let’s talk about the taxes. The federal, state, and personal property taxes; these particular areas don’t always come up on a monthly basis. The same would go for insurance, and the same would go for special occasions, like Christmas, birthdays, summer vacation, or even a death in the family, or illness in a family where you have to travel. Each of these things need to be in your spending plan so that they don’t come up with a nasty surprise. It’s these nasty surprises that cause you to go into credit card debt and particularly trashes your spending plan, and trashes your ability to get out of debt.
So, once you develop your spending plan, you need to account for these. You can either account for these by having a separate account that you set up for it, or perhaps having a series of envelopes where you set aside money, so that when each monthly bill comes due its right there in the envelope. This depends on how well you can manage your checkbook. Because a lot of people make discretionary spending decisions based on the balance of their checkbook, instead of based on their spending plan. So depending on your level of discipline you need to set up a way so that you don't get caught with nasty surprises. So that’s pretty much a key indicator hear in your spending plan. What is your essential discretionary expense? Are you really taking the best advantage of those areas? That, coupled with earning all you can, is the way that you can develop your cash flow engine.