The Equation

When you talk about money, you have to look at two things: money coming in and money going out. Income is the thing most indebted people worry about. Income includes your paycheck(s), alimony, and any other money that you get (interest, rent, royalties). For most of us, it's a paycheck.

Outgo is all the money we spend. That includes the rent or mortgage payment, all of our bills, and how much walking around money it takes to keep us walking around.

Most indebted people figure the fix is in boosting the income. But actually, increasing income is a fairly advanced financial technique and one that can take a whole lot of lead time.

Outgo, on the other hand, is pretty easy to manipulate and see almost immediate changes.

If you make $40,000 a year and spend $45,000 to live, there is no way that is going to come out in your favor. But a lot of people live in that zone and pine that they can't earn just $5,000 more. They figure that's the fix.

But let's say you could figure out a way to live on $40,000 a year. Suddenly, your income matches your outgo and the debt stops increasing.

That's not where you want to be. You want to be spending $35,000 a year to live and earning $40,000. Believe it or not, a person who is in that position is going to be way better off, financially, than the person who earns $40 and spends $40. In fact, that person is financially doing better than the person who earns $150,000 and spends $151,000.

Most of us think we can't reduce our outgo, but it's not that hard. In fact, sometimes it's pretty hard to tell who's economizing. There are tons of tricks and techniques. It involves giving up some stuff (but a lot of times it's stuff you don't miss) and changing your attitude. But it works, and it works faster than waiting for your boss to give you a rais