Updated on 09.05.14

Rule #1: Spend Less Than You Earn.

Trent Hamm

14 money rulesA reader asked me if I could break down my ideas into a handful of principles. After some careful thought, I came up with a list of fourteen basic “rules” that summarize my money and life philosophy. I’ll be presenting these as a weekly series.

If there is a single rule that underlies everything I’ve written about on The Simple Dollar, it’s this simple sentence:

Spend less than you earn.

It sounds so simple, doesn’t it? Yet there are many people out there burying themselves in debt (spending more than they earn) or living purely paycheck to paycheck (spending exactly what they earn).

Positive Effects of Spending Less

1. You begin eliminating your debts.

Spending less than you earn frees up the money you need to make larger payments on your debts. Over time, they begin to disappear, reducing your monthly bills and giving you even more breathing room.

2. You begin to save.

First, you build up some cash savings in your savings account, enabling you to roll through emergencies (like a car breakdown or a job loss). You’ll also have the breathing room to start saving for retirement, paving yourself a great future for your golden years.

3. Your stress level falls.

Knowing that you have fewer debts, your emergencies are covered, and your retirement is being planned for reduces your stress level. You sleep better, your overall health improves, and you feel happier about life.

4. You are now able to explore possibilities closed to you before.

When your debts are gone and you are spending far less than you’re bringing in, you suddenly have many more career possibilities. You don’t have to stick with your high-stress job – you have the financial freedom to move on and chase your dreams. You can live where – and how – you want to live.

All of that comes back to one basic principle – spend less than you earn.

That statement actually has two parts, though.

Spend less refers to the fact that you do need to cut your spending. The first step doesn’t need to be anything drastic – nor should it be. Many of the more extreme money-saving tips come from people who have already tried out the basic tips and love them, so they seek out more intense strategies to further cut their spending. I do this myself – I’m always trying out new money-saving strategies, discarding the ones that don’t work for me and keeping the ones that do.

Getting Started on Spending Less

1. Go through every monthly required bill.

Ask yourself if you really need that service at all. Do you really use Netflix enough, or could you just rent a movie once in a while from Redbox? Do you really use your cell phone much at all, or could you just replace it with a pay-as-you-go phone? Then, go through each bill and see if there are any optional services you can eliminate. Do you really need premium cable? Do you really need unlimited text messages?

2. Keep diligent track of your spending.

Keep a notebook in your pocket and write down every expense you have. The simple process of doing this will make you think twice about unnecessary expenses. When you do have a month’s worth of expenses written down, take a careful look at them. Ask yourself whether or not each of these expenses actually contributed to the value and joy of your life. That process will offer a lot of insight for you as to where your spending is going to waste.

3. Look carefully at your routines.

Watch what you do every day (or most days). Are there things you do each day that cost money? Those things are the most powerful ones to adjust, as trimming just $1 from your daily spending saves you $365 a year. Do you stop at a coffee shop each day? Why not cut down your daily order a bit, or switch to a different shop, or start making your coffee at home? Do you eat out every day? Perhaps you can start brown bagging it a few days a week. Look at every regular expense you have.

4. Get a better bank.

The vast majority of Americans are with banks that don’t treat them very well. No interest at all on their checking accounts. Tons of fees for ATM use. Draconian overdraft policies. A tiny interest rate on savings accounts. Monthly usage fees of all kinds. All of these things are a waste of money. Switch your accounts to a bank that respects you. From my own personal experience, I use ING Direct for both savings and checking. I get great customer service, interest on my checking account, a solid interest rate on my savings account, and I’ve never had a fee of any sort.

4. Do some one-time energy improvements around your home.

Replace some of your light bulbs with CFLs and LEDs. Install a programmable thermostat. Air seal your home. Blanket your water heater. Install some SmartStrips to cut down on electricity use. These tactics will cut down your energy bill significantly, directly reducing your bills.

Want some more tips? Dig into my list of 100 great money saving tips for people just getting started, as well as 100 free things to do during a money-free weekend.

The rest of the phrase, than you earn, though, points to the other part of the equation: increasing your earnings. Increasing your earnings gives you more money with which to get rid of your debts, save for your big dreams, and build a foundation for whatever future moves you may want to make.

There are countless ways to earn more money, but there are several tactics almost anyone can apply in their life.

Ways to Start Increasing Your Income

1. Don’t waste time at work.

The time you spend sitting idle, browsing the web, or chatting on IM or Twitter with your buddies is time you’ve effectively lost. Instead, invest that time in something devoted to your career, even if it’s not directly on a work project. There are lots of things you can always be working on – see the other things below, for example.

2. Work on your transferable skills.

I’m a big believer in transferable skills – skills that one can utilize in almost any career path. Work on mastering such skills. Jump on any and all opportunities to speak in public. Hammer out an effective time management scheme for you. Get into a routine of organizing and filing your paperwork. Brainstorm ideas for things going on in your office. Write clear documentation for the standard procedures of your work. Step up to the plate, take charge of a work project, and get the ball moving forward. All of these things push you towards developing skills that are genuinely useful no matter where you’re heading in life.

3. Build strong relationships with as many people as you can in your field.

Join services like Twitter or LinkedIn and start conversations with people in your career. Send emails to people you’ve interacted with a lot in your career and keep up with what they’re doing. If you have an opportunity to connect people that can help each other, do it immediately, without hesitation. Share what you know and be valuable to others.

4. Start a side business.

I don’t mean filling out surveys or other things you can use to burn a few minutes during the commercial breaks on Lost and earn a few pennies. I mean actually devote serious time and effort to turning a passion you have into a money-making enterprise. Don’t know what that could possibly be? Here are fifty ideas to get you started.

5. Step up to the plate at work in little ways.

There are lots of simple ways to stand out. Speak up at meetings. Show empathy for the problems that others have. Take on only projects you can handle, but do them well. Get to know the support staff – and treat them well. Don’t burn bridges when you move on – make an extra effort to maintain good relationships when you leave. These little things add up to a huge difference.

Keep that rule in mind: spend less than you earn. Each move you make to maximize the gap between what you earn and what you spend will put you in a better place in your life.

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  1. kat says:

    there is a quote in Dickens, (Pickwick Papers?)that sums up the stress level part perfectly. i don’t remember it exactly, but it is close to-Income 500 Outgo 499.99=Bliss, Income 500 Outgo 500.01=Misery

  2. Colin says:

    You can say the same thing about weight loss: burn more than you eat. I think you can make almost a directly analogy for everything you put here toward losing weight.

    Save money too by losing weight and avoiding health issues later.

  3. Kim says:


    The quote you want is from Dicken’s David Copperfield.
    “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

    (English major here!)

  4. Todd in San Antonio says:

    Thanks for reminding me of that quote, Kat. I looked it up and it’s from Mr. Macawber in the novel David Copperfield:

    “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

  5. Dave says:

    Good post, though I’m not sure all of your steps for increasing your income can effectively immediately affect it. Sure, building relationships and increasing your skills helps, but especially in this job market it’s (likely, for many people) difficult to just change jobs or get a raise because they are a bit better at what they do.

    Regardless, good tips. I’m currently working on the ‘spend less’ part and am knocking out huge chunks of debt over the summer – and it’s exciting!

  6. Angie says:

    Again, these mysterious surveys. Where can I get info on finding legit ones?

  7. KH says:

    Great summary on the #1 rule. As with everything it all comes down to CHOSING to take the first step.

  8. Sunshine says:

    Great post, Trent.

  9. MKL says:

    I enjoyed this post, Trent. Thanks for putting it up. I can add another avenue to the “earn” side of the equation… for those who are computer-esque, join a “crowdsourcing” group. The idea is that it lets lots of people get in on a project and do collaborative work. In some models, you get paid based on the level of the contribution (I’m a Q.A. Engineer in my regular line of work, and I use a crowdsourcing service to test applications, learn some new skills, talk with and get ideas from others, and yeah, make a little bit of money from it. Like anything, those that are awesome at this and make a lot of money devote a lot of time to it, but it’s a model that others may want to look into as well.

  10. Kris says:

    Good Post and one that everyone should read and think about. I know my life started turning around and became a lot less stressful once I started eliminating debt. Now I just have my house to worry about and I have a small emergency fund that I am building bigger and I have no other debt.

    You comment about being able to look for a less stressful job and I can tell you that my job became a lot less stressful when I got out of debt. I don’t feel that I “have” to be there, now it feels more like I choose to be there because it is a good company and I enjoy what I do. My bosses have even made comments on how I seem more positive and I believe its because without so much financial stress, I am actually a happier person.

  11. Marsha says:

    Great post – I’ve starting keeping a spending diary, and it’s much less work than I anticipated. But I still have far to go to reduce my spending.

    I have banked with a Big Bank for years, and I am not charged any fees. I don’t know how I lucked into that, but I plan to keep my money parked there so long as they don’t charge fees. :)

  12. cecilia says:

    Your post is very helpful! Spend Less Than You Earn also equates to delayed gratification. It’s better to delay your wants for better opportunity to save.

    I diligently keep track of my spending and make a monthly chart of my spending which is good but I have not fully utilize the data.

  13. ngthagg says:

    I love this sort of post. Learning how to read grocery flyers or make laundry detergent is certainly useful, but they don’t get me fired up like the bigger picture posts do.

  14. Torrey says:

    How amazing is it that the stuff that makes the most common sense is the stuff we (as a society). In the back of our minds, we know that we don’t have the money to make that purchase and we don’t need another donut because neither are healthy to us.

    But no matter how much we discuss these things, until the person wants to improve, the saga will continue.

  15. tentaculistic says:

    Angie – check out Opinion Outpost. They are the only one that I signed up with that consistently has surveys.

  16. Gwen says:

    I also have a checking and savings with ING, but to get money into those accounts you have to have a REAL bank. How do you navigate that?

  17. Sierra says:

    This was a great post. I wonder if you have more specific resources for people who are self-employed though? If I step up to the plate at work by empathizing with my colleagues problems, the only person who’ll notice is me. :)

  18. Megan says:

    @Kat. The quote you were thinking about is from David Copperfield.

    “Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

  19. Leeann says:

    We u ING until very recently, but switched to our local bank about a month ago. We were only earning about 1.5 percent on our Oraange savings account by the time we left ING. Our local bank now gives four percent on our checking, which is free money we can’t pass up.

  20. Quintin says:

    I love this post. I really like how you tie other aspects of life into money management and being frugal. A lot of people are just looking for a few tips to save money not knowing that making frugality a way of life is where the real freedom is.

  21. Great ideas. Debt gets depressing fast.

  22. Lis says:

    @kat (comment #1) The Dickens quote you’re thinking of is made by Wilkins Micawber in David Copperfield. :)

  23. Anna says:

    Looking forward to the series! I’ve read your blog for 2 years, and am in great financial shape, but I never get sick about hearing about the basics. :)

  24. JoannMe says:

    I wanted to make the laundry detergent found on your website. However, I cannot find the Arm & Hammer washing soda at any store in our area. There is Arm & Hammer laundry detergent. But what is the use of using that when I’m trying to save money by making my own laundry detergent. Any ideas how to go about finding it or is there something else I can use?

  25. liz says:

    This is a great list. I’m working on my last debt, a student loan, while at the same time looking for ways to increase my income, a.k.a. side income and improving my overall skills. BTW I really enjoyed the sketches on your PF download book.

  26. Jeanne says:

    I have stashes of money in savings accounts without ATM cards attached, I’m down to 1 credit card, and I’ve haggled with various clerks at various times to keep the interest rate low. I knock the balance DOWN to $5,000 and the next thing I know there are emergencies that wipe out the cash stash and run up my balance :( It’s the saga of the single mom, my statements show wild luxurious spending on doctors, pharmacies, mechanics, and the rare grocery purchase… 3 jobs and never enough for a family of 6 to live on.

  27. soulturtle says:

    Great article, and overall, a great site! I especially like how you bold the important points in your articles, it is a HUGE HUGE help in browsing through your posts.

  28. Ram says:

    great post
    what would you recommend for people who are already under control for aspects like “eating out (always pack home food), no coffee a day, no overly clothing expense, no cable tv, no netflix, no land line phone, etc” pretty much every expense in a month is fixed except for groceries (~$300/mth for a fmly of 3) and gasoline (~$150 a mth)

    for past 4 months, I have started keeping track of grocery amount the Safeway store mentions on my receipt that the purchase saved for shopping there and set aside that amount under grocery category as though it was spent but kept the cash aside. I hope to make a better use of it at the end of the 1 year, seeing how far it gets in a year.

    I had once blogged about this topic, and I am still figuring out…

  29. MGY_Bay Area says:

    I do really like your posts and I am glad that I found a group of ppl who are actually like me. After my marriage I have moved to the States very recently. well, when I moved to America, I was very shocked by lifestyle, which Americans lead including my husband, eating out, spending for entertainment, buying and buying stuff which barely use. I’m an accountant, so being frugal is in every cell of my body ;-) So, basicly, I cut almost everything, well except eating out on the occasion. My husband has excellent scores now and almost debt free. but, he whines sometimes about not having what he had before and I joke “a debt?”

  30. Ricky Ahuja says:

    Great post, just happened to come across this blog in a interview and thought I would check it out.

  31. Rajul Anand says:

    I’m new here in the US and don’t have much idea about how saving’s actually work here. For me, my income is not much to actually do any big saving(I’m a PhD student, receiving moderate stipend). However, I still keep aside some money for emergency. The problem I’m having is that, right now I don’t have a car to go anywhere. I use rides from friends and colleagues for any kind of shopping outside my place. Since, I’m planning to go single living after some time, I’m considering to buy a car. However, due to various costs associated with buying and most importantly, maintaining a car. I’m having second thoughts. Moreover, since I don’t have car, I have to live near my workplace, which is very expensive(it’s downtown Detroit) compared to other places in 10 mile radius. My question is, should I consider buying a car and how much will it dent my earnings if I do ?
    Money saved on rent(max 200-300 in best cases) and my current income is about 1300/month(after taxes). I pay 450+ currently for basic living(food,home) including phone.

  32. Anon says:

    I have an ING direct savings account but their checking accounts require a credit check.

    This is because they don’t charge for overdrafts. Instead, they allow you to overdraft as an unsecured line of credit, like a credit card. they charge interest on the overdraft until it is paid back. This is a way better deal than an overdraft fee, which is really just a massive charge for a short term loan when you think about it.

    So, I have to ask you, you must have protected your credit during your downturn or have reestablished it somehow to get approved for an ING checking account.

    My credit was great before my ‘downturn,’ but is no longer. I wished I had opened an InG checking before it started. Maybe they would have let me keep it even when I tanked. I don’t know.

  33. Anuj says:

    That’s a great post.Specially the point that you mentioned about waisting time at work.I have seen people spend hours on orkut,messengers or silly e-mail forwards.After the initial period at job I have seen people becoming inefficient at work, as they get comfortable with the office environment

  34. Joseph Librero says:

    Great post trent. The most effective strategy I am doing so far is to automate savings. Move 10-20% of your income to a savings account electronically and automatically.

  35. Great post, very similar to the fantastic book ‘Richest man in Babylon’ recommended (or rather raved about) by the late great Jim Rhon.
    This message needs to get out to our children through every educational avenue possible, then we will have a massive improvement in the world at large.

  36. Richard says:

    Hi Trent,

    I enjoyed your post, I would love to be in a position where I could spend less than I earn. That would be a goal to work to!

  37. Aleksandra says:

    A simple rule, but it’s still amazes me, how some people just spend more that they have.. Carry on the good work….

  38. earn and invest money says:

    This is a good post that many people forget. Most of my friends spent much money than what they earn and before the month end they are looking for someone to lend money for them.

  39. darius says:

    i have fallen into the pit of debt. and this rule sure hit good in the face. somethin that i need t this time. after suffering a double whammy a couple of months ago (my wife & i separated then i lost my job)i am now hittin rock bottom. my wife & i then were livin above our means and everythin i read here will be valued & cherished. i now have a new job. its not much but pays the bills. marriage separation has taught me to be frugal and because of that…one step at a time i am startin to py my debts. though its still a long way for me but at least i have taken steps in solvin it. i have learned my lesson and readin trent’s rule# 1 is all but true. somethin that i will do in addition to solvin my debts and pickin up the pieces again. havin li’l money & being alone is hard. now i havetta oth get my finances back on track nd at the same time find new love – unconditional love, that is. again trent, thanks for layin out the cards on this one. you are all right bout these. thanks

  40. Mckenzie says:

    When I originally commented I clicked the
    “Notify me when new comments are added” checkbox and now each time
    a comment is added I get four emails with the
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    my blog … Netflix Free Account – Mckenzie

  41. Very energetic blog, I loved that bit. Will
    there be a part 2?

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