I was talking to a friend (yes, I talk about this stuff on my free time, too) and I was saying that the most critical thing about being financially secure is making sure you spend less than you earn every month, consistently, have a little bit to save and have a small cushion each month.

She said, “what if they can’t spend less than they earn?” I said people have to cut expenses until they spend less than they earn and she replied, “what if they can’t?” and I looked at her as if she had six heads and said, “what do you mean? You can’t spend money you don’t have, indefinitely. You will eventually go bankrupt.” It’s shocking to me that someone would say “what if they can’t,” because you can ALWAYS cut even if it means moving, selling a car or public school.

Her comment reminded me of something I’ve seen with clients and I think it’s important and common enough to write about it: feeling entitled to continue spending more than you earn because you’ve decided something is “non-negotiable.” I often hear, “Johnny would not survive in public school.” Okay, that may be true. Then move to a smaller place, sell your car and commit to Johnny’s education. Do not run up credit card balances trying to do it all.

Feeling shame or embarrassment because you move to a smaller place, although very hard emotionally, is still not a good enough reason to pile up debt. There I said it. “Keeping up with the Jones'” is not a good enough reason. “Shame” is probably not the right word either, because think of the pride you will feel at being financially secure and prioritizing your family’s needs.

Ok, so what can you do if things are that tight and you are consistently spending more than you earn each month? There are only 4 ways I can think of to cover yourself if your expenses are more than your income on an ongoing basis:

  1. Steal
  2. Print money in your basement/counterfeit
  3. Earn more and/or cut expenses
  4. Borrow money/charge stuff

If you are doing either of the first two, please do not tell me and STOP! If you are doing the fourth, you’re going to end up with a pile of credit card debt. You can only use debt to cover your expenses when it is TEMPORARY, as in 2-3 months at most between jobs or something like that. Even then, if you have been reading my blog, you know you need 3-6 months of emergency funds for exactly that situation, i.e. a total loss of income.

The only solution that makes sustainable financial sense is increasing your earnings and/or cutting expenses. If you cannot cut enough, and that happens sometimes especially in large urban areas when you have young kids, you have to increase earnings. That means you have to get creative on the income side by doing things like AirBnB or taking on consulting work, or whatever makes sense for you. But, raising income or cutting expenses are still the only smart ways (not to mention legal ways) to handle the problem.

There is NO indefinite situation where it’s okay to just live bigger than you earn. None. It’s part of the social compact. If everyone overspent with no end in sight, we’d have a lot of people who end up bankrupt (anyone remember 2008?). Check your feelings of entitlement and see if they really fit your wallet. Then, look at what you are spending and see where you can trim and what is really important. Wouldn’t it be great to feel less stress about your finances? Here’s how you start.