So you’d like to get a pay raise, but you are afraid to go ask your boss for a raise? How could reducing debt help that? This is a cornerstone of Financial Literacy.
Here is a novel way to get more Net income, pay down debt! By reducing debt you have more disposable income. The arithmetic is simple, less debt payments (after you have paid down debt) means more money for you.
This is the simplest of arithmetic problems, yet it seems to be missed by so many people that I feel it is important to enumerate it for you.
Net Income = Income (I) – Expenditure (X)
X = ∑ all money spent (S)
I = ∑ all money earned (E)
Where ∑ simply means the sum of the variables in this case things like bills, pay cheques etc.,
Straight forward? So to increase your Net Income you can either increase your Income (I) or decrease X (your expenses), haven’t lost anyone have I?
So if we look closer and see that:
X = sum ( Mortgage Payment,Car Payment,Hydro,Natural Gas,Credit Cards,Interest on Credit Cards,Eating Out, …)
The whole idea is to minimize X (expenditures) and thus your Net Income or Savings increases.
This means the less you spend, overall, the more you have left over. It is much easier to lower your spending, than it is to increase your income (these days). You don’t have to ask your boss for a raise, or work overtime, you simply, spend less.
BCM Simple Rule of Money #1
If you want to make more money, you either increase your income, or you lower your expenses.
The rule seems quite simple, but is it?