Welcome to the 12 Days of Christmas – Personal Finance Style! Over the next two weeks, personal finance bloggers around the Internet will be bringing you the 12 Days of Christmas with a financial twist! We hope you enjoy the series!

On the second day of Christmas, the bloggers brought to me….Two Guaranteed Ways to Financial Freedom! And what are those, you ask?

1. Spend Less than You Earn
2. Earn More than You Spend

Seems simple, yes? Then why is everyone in debt and not a bling-bling billionaire? It’s simple in concept, but execution usually leaves something to be desired.

There’s basically only two ways to make money; Cut back on spending, which saves you money, or increase the flow of money coming in, which makes more money.

Spend Less than You Earn

Spending less than you earn means living within your financial limits. If your income is less than your outgo, then the upkeep will be your downfall. In other words, your net-income has to be able to cover the lifestyle you’re living. Paris Hilton can get away with the glamorous lifestyle because she PAYS IN CASH.  Unfair as that may be, that’s life.

First thing, know your limits!! Find out where you stand by doing a financial survey and see how much you spend vs. how much you receive (from all sources). The two have to counterbalance each other.  If it doesn’t, it’s time to make some drastic changes. Some things to remember about trimming back the lifestyle;

• Cars are Transportation, Not Symbols – As much as the American Automotive Association would like you to believe, you’re car does not define who you are. A reasonably priced auto gets you to your destination just as effectively as a $150k Maserati.
• Buy Enough House, but Not a McMansion – The housing bubble we’re in now was caused by easy credit and people getting into the biggest house they could afford the payments on. When you look around for a house, look for quality, and large enough to comfortably fit the family, plus any additions you might foresee in the near future (kids, in-laws, etc).
• Trim Back on Non-necessities – Do you really need that weekly facial, or the hair appointment. For guys, getting a tool USED doesn’t mean it doesn’t work. Look around and shop (and not at Home Depot FIRST).
• Plan for Emergencies – An emergency fund is a necessity, not a luxury. It keeps you from going in MUCH DEEPER DEBT if an emergency happens. Putting that new transmission or a replacement furnace on plastic will cost a LOT more than simply writing a check.
• Be Frugal, but Not TOO Frugal – Shop for the best deals, but error on the side of quality vs. price. Like I always say, a $20 hammer that lasts 6 years is much cheaper than a $5 hammer each year. For disposable items (kitchen bags, paper towels, etc) it’s ok to skimp and go cheaper. Furniture, major appliances, and the like are INVESTMENTS. Do the research and buy well.
• Get Rid of Memberships, Clubs, and other Small-but-recurring Costs – It might not seem like much, but each DIME that is spent is $.10 less you have. The death of a thousand cuts still kills you. See if there’s anything you can cancel, discontinue, or quit (health clubs come to mind, although I’d recommend NOT cutting the club but FORCE yourself to go).

“It’s not having what you want, it’s wanting what you’ve got.”

Sheryl Crow

Earn More than You Spend

On the other side, after you’ve trimmed the lifestyle to something manageable, it’s time to examine what to do to bring in more of the green.  Probably like most normal human beings, your job is your primary source of income. So here’s a few ways to optimize your job.

• Increase Your Withholdings – If you routinely get a tax refund, you’re giving the government a free loan of your money. Re-calculate your W-4 numbers and add a deduction or two (calculate it carefully). This could increase your take-home by hundreds of dollars a pay period.
• Contribute to Your 401k – If your company matches contribution employees’, at a minimum put in enough to get the match. It’s free money. Free. Freeeeeeee!
• Ask for a Raise – if you’ve worked hard, and can prove it, then don’t hesitate to talk to the boss about a pay increase. The best way to get more is to be able to demonstrate how you saved the company money, time, or made other improvements to work. Ask, but be prepared to justify your request.
• Use Your Benefits – If you have medical, flex-spend, and other benefits, USE THEM. Many medical plans allow for yearly glasses and optical exams, free or cheap check-ups, and other simple but needed services.
• Change Jobs/Careers – This is a VERY drastic change, but if you feel like you’re not going anywhere, and you don’t like what you do, it’s time to move on. Do it now, do it smart, and don’t burn bridges.

Outside of your job, there’s oodles of things that you can do to make extra money.

• Sell Something – eBay, Craig’s List, want ads, or just a garage sale. Pull out all that old stuff you never use or see and GET RID OF IT. A good rule of thumb, review everything that’s been in boxes for more than a year, and decide whether you really need it. If its been in a box for a year, it might as well be gone forever.
• Get a Second/Part-time Job – Mow lawns, stock shelves, deliver pizzas, knit afghans, whatever you have the talent and free-time for.
• Look for Passive Income – Stocks, Mutual funds, and other investment possibilities. Rental properties (not exactly passive), vending machine routes, and other things/activities that bring in income w/o requiring a lot of time.
• Start a Business – Very risky, but arguably the most profitable action of them all. 9 out of 10 businesses fail in the first few years, but for that 10th one,.. Can you say Google!!

Stay tuned for Day 3 of the 12 Days of Christmas – Personal Finance Style at [Debtfree Revolution] – "Three Paid Credit Cards tomorrow!