Earn What You Spend

Where We Are

It feels like we’ve been peering over this cliff for a while - I remember first hearing whispers of Countrywide Financial having problems last fall.  That home prices might start to cave from their catastrophic heights.  But after each mini-crisis, it seemed like we hit the bottom.  Now it seems like we have no idea where the bottom is.

For a brief retrospective of these past few weeks, take a look at the NYTimes interactive chart.  It’s amazing how little we knew even two weeks ago.

More interesting still, I think, is looking at the S&P500 over the past 10 years.  Don’t they always tell us to invest for the long haul?  If 10 years isn’t long-term, then what is?

What To Do

In personal finance, knowledge isn’t always helpful unless you combine it with perspective guiding principles.  Let’s look at one of the most basic, and most important, steps to take in a time like this: understanding where you are financially.

We have to have the data, the understanding, the picture of where we stand with our finances before we can make any decisions.  This is where knowledge becomes power - its the map that will guide us (granted we have the right compass!).

There are two pieces of the puzzle we need to focus on to attain financial freedom: income (what we earn) and expenses (what we spend).  Having an adequate picture of both is critical.

We’ll start exploring ways to track one part of this equation, the spending side.

In the meantime, do you know how much you spent last month?