Financial Literacy - Growing your bottom line
A cartoon woman in blue with a red watering can inside a large green purse and a yellow/orange background
smart spending
How to shrink your bottom line

Shrinking your bottom line is as easy as thickening your waist -- all it takes is the discipline to develop bad habits and consistently make the same mistakes over and over.  

Some basic methods for subtracting from your net worth, such as simply spending all your money, may work for most people. But advanced techniques will help even the most diligent and financially responsible people fritter away their fortunes.

Personal deficit
Read the first three tips for bottom-line shrinking basics. The last seven tips offer more sophisticated ways to lose money.
10 ways to shrink your bottom line
  1. Spend too much
  2. Don't save
  3. Use credit as an emergency fund
  4. Try to get rich quick
  5. Buy high, sell low
  6. Raid retirement funds early
  7. Pay lots of fees
  8. Go bare, or -- inappropriately covered
  9. Let taxes run rampant
  10. Believe everything you hear, read and see

1. Spend too much

Maintaining a champagne lifestyle on a tap water income will enhance anyone's attempts to shrink their bottom line.

Spending more money than you bring in is the granddaddy of all financial problems. If more money goes out than comes in, it really doesn't matter what else you do.

"Living above your means is the number one disaster," says Cary Carbonaro, Certified Financial Planner and president of Family Financial Research.

So toss the budget and break out the credit cards to see your net worth slip away as quickly as the national debt balloons.

"If you don't have a budget, you don't know that you're overspending or that you're under-spending or what you have leftover to invest and save. I feel like it's basic 101, but everybody hates (this advice)," says Carbonaro.

"Not unless you're really incredibly, incredibly wealthy can you say, 'I don't need a budget because I know I have enough money no matter what,'" she says.

Unbridled credit card use can hasten the decline of your fortunes. Even those with a low-interest credit card discover that money spent servicing debt can nickel and dime any savings plan to death.

Tip: Unless you're expecting a billion-dollar inheritance, start tracking your expenses using this spending work sheet.


2. Don't save

Even if you're not spending more than you make, simply not saving anything can have a similarly negative effect on your net worth.

Except for the very rich with their swimming pools overflowing with silver dollars and cabanas fitted with gold-plated commodes, everyone will eventually run into a situation where they need savings, either to stop working or to deal with an emergency.

3. Use credit as an emergency fund

For a long time credit cards have served as the de facto emergency fund for many.

With credit issuers now lowering credit limits and increasing interest rates in response to the Great Credit Crunch of '08, a stash of real money seems much more appealing these days. An emergency fund that's not available in an emergency won't do anyone much good.

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