At the end of the day, if your finances are in bad shape then you have one of two problems. You are spending too much money or you are not earning enough money. It is that simple.

I know what you are going to say. What if I have a bunch of unexpected expenses or one large unexpected expense? It could be argued that in this case you are not earning enough money. If you were earning enough money, then you would have the necessary insurance and funds available to cover these types of expenses, in theory.

Spending Too Much

I notice this sort of problem with a lot of my friends and coworkers. It is very easy to identify a spending problem when you are around someone on a consistent basis. I consistently hear my coworkers complain about how they do not make enough money.

Lunchtime rolls around, they go out and buy their lunch for around $7, on average, a meal. Well, over the course of a two-week pay period that is $70 or roughly $140 a month. That is $1,680 a year. I bring my lunch to work and it cost me $10 a week or $40 a month, I now have $100 more than my coworkers per month or $1,200 per year.

I stopped spending as much when I began categorizing my purchases into the simple want or need categories. I have done this so long that I do not really consider buying anything that I want any more. I can prove this by people asking me what I want for Christmas, and my response is always cash. If I am forced to think of something, I normally reply “I need a new electric razor or a half-dozen socks”

Not Earning Enough money

I can make a lot of people mad in this section because it is very difficult to not make enough money. I read many personal finance blogs where people are living happily on as little as $1500 a month and in some cases much less than that.

That is around $18,000 a year after taxes. Therefore, having a job that pays $30,000 a year should put you in good shape. I understand that is will depend on where you live as this amount in New York City would be equal to having almost no money, but you get the point.

At the end of the day, you probably have a spending problem if you are in financial trouble. You house is too big, your car to expense, you spent too much on your education, you eat out too much etc.

Start cutting cost and paying off debt and once your debts are paid off, start saving your money, do not fall back into the trap of spending too much.