The second step in getting out of debt and becoming immensely wealthy comes from The Richest Man in Babylon. Once we have completed step one which states that we need to “Start thy purse to fattening,” also known as, paying yourself 10 percent of your income first, and then using the rest for living expenses, we can then “Control thy expenditures” or live below our means.
If we save 10 percent of our take home income, that leaves us with 90 percent to spend (No kidding). Controlling your expenses and keeping then at no more than 90 percent will enable you to never enter into debt to pay for things that you cannot afford at the time. Creating a budget will make this a much easier task, and will allow you to truly decide if an expense is a want or a need. When you do a budget, you can add things such as entertainment expenses and going out to eat so long as you do not go over your 90 percent allotment. This way you will not break your budget by going out to eat or doing something fun.
Keeping your expenses at a controlled level despite getting a pay raise and advancing in your career will enable you to save even more money. Do not fall victim to lifestyle inflation! It is extremely easy to just use any extra money on the latest trend or toward a new toy or hobby (Trust me, I’ve done it!). If you can overcome this, then that extra thousand dollars a month that you are making with your new promotion will go much further down the road than a new toy. That thousand dollars a month raise in a low cost index fund will grow over time to a significant amount of money. So think twice before splurging for something material now, because even better things come to those who wait and are smart with their money!