Personal Finance For Dummies®, 6th Edition

Chapter 3. Determining Where Your Money Goes

In This Chapter

• Understanding why people overspend

• Assessing your spending

As a financial counselor, I've worked with people who have small incomes, people who have six-figure and even seven-figure incomes, and everyone in between. At every income level, people fall into one of the following three categories:

• People who spend more than they earn (accumulating debt)

• People who spend all that they earn (saving nothing)

• People who save 2, 5, 10, or even 20 percent (or more!)

I've seen $40,000 earners who save 20 percent of their income ($8,000), $80,000 earners who save just 5 percent ($4,000), and people earning well into six figures annually who save nothing or accumulate debt.

Suppose that you currently earn $50,000 per year and spend all of it. You may wonder, "How can I save money?" Good question! Rather than knock yourself out at a second job or hustle for that next promotion, you may want to try living below your income — in other words, spending less than you earn. (I know spending less than you earn is hard to imagine, but you can do it.) Consider that for every discontented person earning and spending $50,000 per year, someone else is out there making do on $45,000.

A great many people live on less than you make. If you spend as they do, you can save and invest the difference. In this chapter, I examine why people overspend and help you look at your own spending habits. When you know where your money goes, you can find ways to spend less ...