Nickeled and Dimed

If this is your first time visiting Centsability to Wealth you may want to see what we are about , read about me, or read our introductory post.

In the first accounting course I ever took, my professor spent half the class stressing to us the most important formula an accountant would ever need to know; Assets= Liabilities + Owners Equity.  Once you figured this formula out, everything else we did in the class became much easier.  If you were making an entry to one side, you simply had to figure out where it hit on the other side to make the formula balance again.

Your finances have an equally simply formula.  And like in accounting, once you fully grasp the formula everything else begins to fall into place.  What is this magical personal finance formula?  Cashflow= What you earn - What you spend.

Cashflow is the key to your finances.  It is what you save, invest and pay off debt with.  In order to increase your cashflow, you have two choices, you can either raise your income or lower your expenses. 

The problem a lot of people run into is trying to get around this formula.  If they don’t have the cashflow to buy the new Plasma TV they want, they put it on a credit card.  This only further throws their personal finance out of whack, as they have now increased their monthly expenses (credit card payments), while keeping their income the same.  This is how our country got to the point we were at a few months ago where we had a negative savings level.

The larger the gap you can create between your monthly earnings and your monthly spending, the better your financial situation will be.  For the next two days we will discuss first different ways to save money, and then different ways to earn more money.  Some of these may work for you, while others will not.  But if you can implement just a few strategies from each side, you could dramatically improve your formula and in turn improve your finances.

Please continue sending any personal finance related questions, suggestions and story tips to centsabilitytowealth@gmail.com.