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If your outflow exceeds your income, then your upkeep will be your downfall.

The first step to gaining wealth is spending less than you earn — it’s vital to making any financial progress. So when you over-spend, you’re doing the most damage possible to your finances.

Here’s what the book “Stop Acting Rich” says about the issue:

“Most people will never earn $10 million in their lifetime, let alone in any single year. In fact, most households (97%) are unlikely to ever earn even $200,000 or more annually. So what if you are unlikely to become rich by generating an extraordinarily high realized income? The only way you will become rich is by being like those millionaires at the other end of the continuum: by living well below your means, by planning, saving, and investing.”

There are two types of over-spending that can ruin your finances:

• Over-spending on the little things – the small amounts that seep out of your pockets here and there and eventually become large.

• Over-spending on the big things – homes, cars, boats, cottages, and so on.

The top complaint from people who don’t have balanced budgets is, “I don’t make enough money.”

In the vast majority of cases (probably 95% or more), it’s not the amount these people make – but the amount that they spend that’s the problem. (In some cases it’s true that people simply don’t make enough money to save, invest, etc. As such, they need to concentrate on increasing their income as much as they need to control over-spending.)

The author writes:  ”My wife and I once counseled a guy who made $130,000 a year. This was back in the early ‘90’s, so $130,000 was worth something (it’s still pretty good today.) When I saw his income, I thought “this will be a piece of cake” to make a balanced budget. But once we got through the mortgage on the mansion he owned, the four luxury cars he leased for himself, his wife, and his kids, and the amounts they spent on clothes and vacations – they had spent it all and then some…”

This is why over-spending is the #1 money mistake – because no matter what your income is, if you spend it all plus some, you’re going backwards financially and you’re losing ground.

Source:  ESI Money