Last week, I wrote an article for Blueprint for Financial Prosperity called Playing Good Financial Offense. The flipside to this concept is playing good financial defense.

Improving your personal income statement can be broken down into two fundamental concepts: generate more income and control spending. The first step, however, to creating wealth is to manage your expenses. Without the ability to get a handle on spending, it will be much more difficult to get ahead financially. Think about it. You can continually increase your income, but without having any spending barriers, you will just continually increase your expenses to eat away at your bigger paycheck.

By controlling the money that flows out of your bank account each month, you can keep more of what you earn. This is what Thomas Stanley refers to in The Millionaire Next Door as playing good financial defense.

When you play good financial defense, you have the ability to put the money you save to work for you. In other words, your savings can be used to invest, which will create more money and build wealth. It’s an elementary concept, but the fundamentals of creating riches are pretty simple. Control your spending to keep more of what you earn, and spend your money on things that will make it grow and increase your net worth.

The great thing about playing financial defense is it is easy, especially when compared to increasing your income. In order to increase your income, or play financial offense, it generally involves significant effort and working at something in order to get your expected result. You have to negotiate a raise, get a second job, interview for a better paying job, etc.

To play financial defense, very little effort has to be made because the money is already there. You just have to spend less of it. So in essence, effort is actually conserved since spending money requires you to take an action. Saving money and controlling your expenses also provides immediate results. Trying to increase your income cannot provide this immediate result. By not spending money on going out to dinner five times a week, you immediately save a couple hundred dollars.

Think of it this way. What would be easier?

• Save $100 a week, or $5,200 a year, by not overindulging on unnecessary purchases and trimming expenses
• Increase your income by $6,500, which is what you would need in order to take home an extra $5,200 after taxes

Get control of your financial defense strategy, and you will significantly leverage your ability to create, accumulate and build riches. To get started on your defensive strategy, read Take Control of Your Financial Situation - Part I to create a plan with immediate results.

Millionaire Money Habit: Playing good financial defense is the first step to controlling your personal finances and building a life of wealth. Learn to control of your spending and you can take even greater advantage of the results from playing good financial offense. -RT
photo by dbking