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The Financial Equation That Can Change Your Life

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Ask a person what is the single most important thing that could happen to improve his or her financial picture and the answer you'll get - in various gradations - is a sudden influx of cash. Some of us wish for pay raises, others want to win the lottery, and more indecisive types just dream of a sudden windfall of cash.

Take an average family in an average neighborhood in a small town that's earning, all together, about $60,000. Chances are that family is whining about money and wishing, possibly even praying (if they live in the Bible belt) that they can earn more money. They probably even have an amount in mind. If only, they will whine, we could earn $70,000, we'd have it made! Even $68,500 would be enough! That would be all it would take for us to be well off.

Meanwhile right down the road is another family in the same general circumstances, and they're also moaning and groaning about not having enough money. The thing is, this second family already earns $70,000. But it's not enough. They need $80,000, maybe even $85,000.

Whatever you earn, if you're strapped for cash right now, chances are pretty good that some people in very similar circumstances to yours are doing just fine with the same amount you're earning.

And whatever sum you're dreaming about ... wake up! There's somebody out there that fell into that much money and is flirting with bankruptcy.

It's just as easy (maybe even easier) to go broke earning $100,000 a month as it is to go broke earning $4,000 a month.

If you're a typical American you probably wonder: how on earth can you go bankrupt if you bring in $100,000 a month? That's over a million a year!! How can you be anything but rich?

You can go broke and it's not hard. Here's how. Spend $101,000 a month. Believe me, that extra $1,000 can really sneak in unnoticed when the income shoots up. That's why so many lottery winners and movie stars and the "silly rich" can wind up broke. When you only bring in $4,000 a month, it's pretty hard to "make a mistake" and spend $5,000 since you're probably counting your pennies.

Your financial health is made up of two things. Americans fixate on one of them and ignore the other.

Part of your overall financial picture is your income. That's true. I don't want to underestimate it. Your income is vitally important. And don't get me wrongmore is better when it comes to income.

But the other part of your overall financial picture is what you spend. This is where Americans get glassy-eyed and rub their foreheads.

Most of us act like we have control over our incomes because we obsess about them and figure out way out of debt based on income boosts. The truth is, you don't have much control over your income.

Let's say you have a job. You really don't have much control of what kind of raise you'll get. You can do a good job, but if the industry suffers a downturn or your boss doesn't like you or you make some career mistakes, you may not even get any raise. The old adage that hard work will bring you rewards really didn't mean that working hard for a corporation guarantees you regular raises. You may not get them.

You might think you could just find another job. That's true. But the kind of job you can get depends a lot on your education, skill set, and background as well as where you live and the competition to nab those elusively rare high-paying jobs. And let's face it, at some point, you max out. If you're a world-famous brain surgeon working at a world-famous brain surgery hospital you may be already at the top of your game. You can't walk out and figure you'll work somewhere else, because there may not be a "somewhere else" for you.

But you do have a lot of control over what you spend.

Most Americans are mystified by that. They see debts and expenditures as things that "just happen." It's true that you have to pay rent, buy food, and pay your taxes, but you have some leeway in the first two items. When it comes to entertainment, clothing, and vacations, your control zooms off the charts.

I've seen people spend money on things as if they were zombies. A family in five-figure debt took an expensive vacation one year and ended up getting dunned by collection agencies because they let some of their already festering debt fall into worse arrears than previously. When I asked them why they went on an expensive vacation that year, they seemed stunned.

"It was summer. We always go on vacation."

Young women feel that it's their birthright to have designer jeans and expensive handbags, not to mention big name shoes. College kids who wait tables to buy books will put a spring break fling to Mexico on plastic. Why not? They're entitled!

That entitlement mystique has created the mistaken sense that our expenditures are uncontrollable. They're not.

You can trim your budget by 10% easily, without even feeling anything. Most of us can save even more by making conscious decisions and adjustments. And it's possible for zealots to cut expenses radically without giving up a decent lifestyle.

If you cut your expenses by 20% (a good target, by the way), that's like getting a 20% raise. You can't reasonably expect your company to give you a 20% raise, but you can give one to yourself!

What's more, frugality is not necessarily a program of hideous deprivation and austerity. It can be creative, engaging, and fun. It forces you to do things differently and many people struggling with debt and "low incomes" are often struggling in other areas.

Here's what I mean. You may feel like your life is out of control and you dream that a bigger income would "fix things." But then you decide to start saving money. You give up cable TV and going to the movies. This forces you and your family to interact a bit more. You start playing ball in the park after work or board games at night.

I've heard of restaurants-only couples who went on frugality plans who discovered that cooking at home was not only fun, they ate healthier food. The couple loses weight, finds a hobby they both can enjoy, and learns (here's a surprise) that it's really no more time consuming to cook regularly than to eat out.

Money-saving strategies may encourage you to take up sewing, start a garden, or bake your own bread ... but many people find they enjoy these things.

Not only that, frugality is a good incentive to proper work-life balance. Most of us get into the debt whirlwind because we're living too much in the work zone. (Work is expensive! It requires gas, clothing, day care, and all sorts of special services to permit us to log those long hours.) Frugality is going to force you to spend some time at the home front.

And when it saves you money, you realize you not only can afford to spend more time at home with the family, you can't afford not to.

Whether you're already a froog or just want to embrace the frugal lifestyle, visit . If you're digging out from debt, don't despair. You can find all information (no selling) at

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