Income And Expenses

Ideas to keep expenses low

The last two components of a personal financial statement are income and expenses.

Any money earned is income. Any money spent is an expense. It’s simple.

Your money can be used to create assets or to pay off liabilities.

Simple Rules Of Thumb

You create a surplus when your income is more than expenses. You use the surplus to buy assets.

When your expenses are more than income, you create liabilities.

How do you deal with such situations when your expenses is more than your income?

You usually borrow or increase your income.

Borrowing money to fund your expenses may be good in the short-term but it can create a feedback loop where in you continue to borrow to fund your expenses. It’s the path to financial disaster and must be avoided in all cases.

What Is The Ideal Scenario?

• Keep your expenses low

• Avoid instant gratification

• Avoid borrowing more than 10% of your net-worth

• Focus on increasing your income

• Pay yourself first i.e. invest before spending

• Use budgeting

• Think before you spend. You do not want to die poor

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