The next step on the road to financial freedom is to audit your expenses and income.  The fundamental idea is that the easiest way to accumulate money in savings is by reducing the cost of things that you already pay for or by increasing your income.  This step is not once-and-done, but rather is a process to revisit on an annual basis.   

The important thing to consider is that I am not recommending that you reduce your lifestyle in any way.  Every financial column has at some point or another run a list of “10 easy ways to reduce your expenses” with suggestions like packing lunch instead of eating out, or shopping for clothes at the thrift store.  If those ideas work for you, great!  But in my experience, most people are pretty settled into their spending habits. 

With an expense audit, we will try to identify expenses that you could reduce without significantly altering your level of service.  Insurance is a major example; rent or mortgage payments are another. 

After we’ve looked at the expense side, we will examine your income.  Is there any way for you to increase your income, by getting a raise, changing careers, or otherwise? 

The net result of the income/expense audit will be free cash flow than you can divert directly into savings for retirement or other goals, without feeling any impact on your standard of living.  Stay tuned for the next few posts, where we will delve deeply into how to decrease your expenditures on insurance, mortgages, day-to-day expenses, and how to increase your income!

 

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This entry was posted on Friday, December 1st, 2006 at 8:42 am and is filed under "The Plan", Saving. You may e-mail this post to a friend. You may print this page. You can leave a response, or trackback from your own site.