There is a lot more to Financial Fitness and Independence than just a foundation, but you have to start somewhere, right?

So I am going to share with you my first of 5 Foundations For Financial Fitness.

Foundation 1

Spend less than what you earn (and do something intelligent with what is left)

This statement is not “rocket science.”  You might be surprised how many people get tripped up at this initial step.  There are many things that can make this process harder and can come back to haunt you later.

I suggest starting with a spending plan.  Some people use the word “budget”.  I think this takes some of the power away from your decision making.  If you PLAN on how you are going to SPEND your money, it is more in your control than fighting against a budget.

This is your basic formula: Income – Savings = Expenses

Here are my top 10 tips for designing a spending plan.

1) You get what you earn
My most successful clients go into this process with a mindset they “deserve” nothing.  They will get whatever they earn through discipline and patience.

2) Monthly Money Meeting
Developing and reviewing your spending plan with the people impacted by the decisions you are making will tend to have a better result with less “friction” after the fact.  Scheduling this conversation with significant others and/or family can be a great way to talk about what you are trying to accomplish and get everyone to work together.

3) Give every dollar of income a purpose
I am a fan of Dave Ramsey, and he calls this concept giving each dollar a “name”.  If you don’t give it a purpose or earmark it for something, most dollars will find one on their own.  For smaller expenses throughout the month, consider using an envelope system with cash or using prepaid store cards.  i.e. put $200 on a prepaid Costco card and once it is gone, it is gone.  The same can be done for Starbucks or whatever else if you need to give yourself a monthly “allowance” for treats.

4) Autopilot – Set yourself up for success
Make good decisions automatic (saving money, paying the mortgage etc) and make potentially bad decisions take effort. Set up automatic savings programs that happen every month and require no additional effort on your part.  If you are going to go on a frivolous shopping trip, you will have to figure out where the money is going to come from.  See tip #3.  If it takes a bunch of extra work for you to do something you shouldn’t be doing right now, you might decide to go for a walk instead.

5) Keep it Simple Sweetheart
Your spending plan should be as complex as it needs to be, but as simple as you can get away with.

6) Spend less time juggling payments
Work towards paying all of your fixed bills and prepare for the month ahead on 1 day each month.  Added Bonus: If this is done right around your “Monthly Money Meeting” everything will be fresh in your mind.
Trying to pay the mortgage at the first of the month and then pay the utilities later in the month with a childcare payment can get confusing.  If you can work up to paying it all on one day, it will save mental energy.  You might not be able to do this right away, but it is a good goal to work towards.

7) Steady wins the race
Minimize variation whenever possible.  For example – average out your utilities and try to pay the same amount every month.
You may also want to consider “creating your own paycheck” if your income is variable in nature.  Consider setting aside a specific amount of money each month for the larger periodic expenses like property taxes, insurances, vacations etc. so they won’t disrupt your spending plan when the payment comes due.

8) Credit Cards
Credit cards are a cash flow trap.  Stay away from them.
I can hear the questions now…”But I don’t carry a balance and I always pay it off,” or “but I am earning points/miles/marbles”…
One of the secrets to an effective spending plan is awareness of your spending and a direct impact on you financially between spending money and what happens in the rest of your life.  Using credit cards creates a layer of separation between you and clarity about your money.
Credit cards make it easier to spend more money.  A study I read about some time ago showed that credit card purchases were up to 26% higher than debit card purchases or cash.  Those free points, miles and marbles start to get pretty expensive at that rate.

9) Spending Money
As your spending plan develops, it is important for most adults earning more than the bare minimum they need to get by to have some discretionary money.  $20 a month or $200 depends upon how much you are making and whether or not you are on track for your goals.  This should be money that you do not need to “account” for or feel guilty about spending or saving.  The new issue of your favorite comic book came out, great.  Or you had a rough day at work and stopped for an ice cream on the way home, fantastic.  This should be your own “allowance.”  This is another piece that may not happen right away, but is something good to shoot for.

10) Adjustment phase
Keep in mind that the first month you are transitioning to a new spending plan may be a little rough.  The second month will be better and by the 3rd or 4th month, you will have all the kinks worked out.  Don’t beat yourself up it if doesn’t work perfectly the first month.

In my next post, I will spend some more time on the “smart things” you can do with what is left over.  For now, stash it in your savings account and we will talk about it more next time.

I hope you found this valuable and I look forward to reading any questions/comments you might have.  Please feel free to email me at

If you would like a copy of the spending plan template that I like to use with my clients, please send me an email and I will forward you a copy.