This little tip helped me manage my money by cutting spending about 60%. Those results are a little skewed because I did this when I was in high school. However, the principle remains the same.

What if I told you this little money management tip can easily cut your spending by 10-20% right off the top? It can. No software package can do this for you. There is no purchase necessary. You don’t have to worry about needing fancy equipment or even a fancy new catch phrase. You just need to learn how to do this one ridiculously simple thing.

Write down what you spend.

And a collective groan ensues from the readership. Allow me to explain my findings. When I was a senior in high school I decided I needed to do a better job of saving money. Most people would naturally set some type of a savings goal. I didn’t do that. I didn’t have a set goal. I wasn’t shooting for any particular target number each month. Instead, I just wrote down everything I spent–and I mean everything. If I bought a soda out of the machine in front of Wal-Mart then I wrote down $.25 on my sheet of paper. I didn’t have some fancy software package, excel spreadsheet, or neato binder, I simply had a piece of paper that had three columns: Date, Description, and Amount. Each night I would write down whatever money I spent.

My findings were surprising. In the first month my total really shocked me. I couldn’t believe I was spending that much money. Since I was making $6.25 an hour, working part-time, it wasn’t as if I had lots of money coming in. But despite that, I was shocked at the amount of money that was flowing out.

The next month, my spending total was literally cut in half. The important item to note here is that I did not make any special effort to save any money. I simply had made the goal to write down everything I had spent. Let me rephrase that: I made no extra effort to save money. I simply wrote down the item every time I spent money.

The next month, the amount from the previous month (50% lower than the first month) dropped another 20%. This means that in three months I had curbed my spending 60% from the original amount. During the third month I really did notice a difference in my spending habits, whereas during the first and second months I hadn’t noticed much difference at all. The difference I did notice during the third month was interesting. I wouldn’t spend money because I didn’t want to have to write it down later. Writing it down was annoying enough that I would forgo stopping at a restaurant to grab a bite to eat, or buying a new shirt when it wasn’t planned. Writing down my expenditure made me not want to spend as much money.

Even more encouraging than the drop in expenses was the “status-quo” feeling I was still maintaining. By this I mean that during the previous three months of writing expenditures down I had cut my spending by 60% but I didn’t feel any different. I didn’t feel deprived, dejected, boring, out of style, uncool, or weird. I really felt like I still could have anything I wanted. Put another way, I had maintained my happiness (I would say I was even happier now knowing I was saving money), while lowering my consumption.

How is that possible? I believe that happiness is not a product of consumption.

What was making me happy? I think the feeling of control over my money added to my happiness. Also, I knew I could still buy the things I wanted. I wasn’t feeling deprived–just in control.

Once you have gotten in the habit of writing down everything you spend, you’re ready to begin budgeting. And once you attain that step in mastering of your money the sky is the limit as far as your financial potential goes.

I challenge you to write down every single thing you spend. Your expenditures will drop–guaranteed. Write it down!

My objective in writing this article is to dispell a myth that should have been dispelled a long time ago when it comes to the tax advantages to owning a home. For purposes of my objective, a better title to this article should be “The Tax Advantages to Owing on Your Home” because you only get the tax advantages if you are in debt.

Really quickly, we’ll move through the tax advantages to owning (owing) a home. When you enter into a mortgage, as you probably know, a large portion of your monthly payment will go towards interest. As you pay down the principal, the interest portion of the monthly payment grows ever smaller, while the principal amount of your payment (the portion that goes towards actually paying down your debt) grows ever bigger. This interest is tax deductible if you choose to itemize your tax deductions. This tax advantage can be pretty lucrative for just about everyone - especially when you’ve first entered into the mortgage because you will naturally pay more interest.

However, it is a tax advantage. If you could choose to pay tax or pay taxes with an advantage, you’d choose the latter. That makes perfect sense. But never forget how this tax advantage actually becomes available.

You have to be paying interest.

Even savvy tax advisors will tell people the following: “Oh no, don’t pay your home off early. You’ll lose your tax deduction!” I feel sick to my stomach. Very well educated people tote this as a reason to stay in debt.

Would you like to guess who really pushes the tax advantages to owning (owing) a home? You got it–mortgage brokers, banks, loan officers, etc. They stand to profit from you stringing that mortgage out as long as you possibly can. They’re probably hoping you’ll take out an equity loan as soon as you get a chance too. There’s a conflict of interest if you’re taking advice from your lender when it comes to the tax advantages of owning a home.

The lender will give you, let’s say, a 7% interest rate. At the same moment he’ll tell you that the real rate or effective rate is only 5.6% if you’re in the 20% tax bracket, and 4.9% in the 30% tax bracket (you can get to these numbers with the following formula: interest rate * (1 - tax rate) ).

They never really mention that the tax advantage is only made available because you’re still paying them 5.6% or 4.9% on the loan.

Owning a home is a wonderful, wonderful thing. When I say owning I mean owning. You don’t make house payments. We’ll run two different scearios to drive home this point. Paying your house off early is and always will be better than having a tax deduction for the interest you pay.

We’ll use the following numbers:

• Sale Price: $150,000
• Down Payment: $30,000 (20%)
• Interest rate: 7%
• Tax rate: 25%
• Time: 30 years

By making only two extra payments per year you are out of debt 10 years faster and save $48,317.68! Remember, I’m including the tax “advantage” to owning a home in this calculation. Any way you cut the cake it’s still going to come out the same.

Finally, the tax advantage is there to promote home ownership, so I do appreciate it. It certainly does help. It is a nice benefit. But in no way does it outweight being entirely debt free with almost $50,000 saved as a result. Think about it this way–would you give me $1 to save $.25? Of course not. Yet that is exactly what you’re doing when you decide to not pay off your mortgage in favor of a tax advantage you will be giving up. That is a ludicrous idea. The numbers are here and they speak for themselves. Ownership will always be better than borrowing when it comes to funding your lifestyle securely.

People are always looking to make a return on investment improvement. Don’t you love hearing about a person’s raving success in the stock market? (Yet they fail to mention all of the losing stocks they also picked). If you’ve ever been bored enough to be watching late-night television, you most likely saw an infomercial about how you can make it big “flipping” properties, or leveraging (using debt) yourself to the hilt to make huge returns on your investment.

Well, I’m here to say that I also have come up with a way to make a guaranteed 18% return on your investment! Read that again if you’d like. I guarantee that you can make an 18% return on your investment. And it won’t cost you a dime. You won’t even have to buy my extremely expensive tape set for $49.95 (normally $149.95 - but if you call within the next twenty minutes you save $100!). That’s right. I’m going to give this information to you absolutely free. Here we go.

Imagine you’re an average American. That means you carry about $8,000 on your credit card. If you’re still average, then you also pay an interest rate of about 18%. That means in one year you pay $1,440 to Visa, Discover, or whoever else might be your taskmaster.

Suppose your wealthy grandmother gives you $8,000 tax free. What should you do? What would most people do? Let’s take a look at two different alternatives. Suppose you have the opportunity to invest that $8,000 into a mutual fund consisting of the stocks that make up the S&P 500. Historically (cautiously including the bubble…) you might get 11%. Let’s make the gross assumption that this fund is expected to also return 11% this year. So you take the plunge and invest the $8,000. In one year you’ll have made $880.

Because you invested your $8,000 windfall into a mutual fund instead of paying off your credit cards you effectively made a -7% return. You always need to evaluate choices with money based on the next best alternative. And in this case, you lost $560.

You must also note that the 11% return offered by the mutual fund is not a guaranteed return on investment. Naturally, there is a chance that the mutual fund could lose money during the year, or return some paltry amount. These risks are not present when you use the windfall to pay off the $8,000 credit card balance. Let me make that point again. To avoid an interest payment of 18% by zeroing the debt is the same as getting an 18% return on money you invest.

When would paying off your 18% credit card balance not be financially prudent? There is one scenario: If you can find a risk-free, guaranteed investment for your $8,000 that would yield a return on investment greater than 18% per year then it would be wise for you to invest your money in that vehicle and continue paying your taskmaster. The odds of finding such an investment? Virtually zero.

The only guaranteed return on investment I know of is to pay your debts off early or settle for federal rates. If your mortgage rate is 7% and you decide to pay the principal down then you are making a guaranteed return on investment of 7%. If your credit card balance is subject to an 18% balance and you pay it off then you have made a guaranteed 18% return.

I think I’ve beat that dead horse enough.

If you have enough money in your checking account to cover one month’s expenses, and you are budgeting your money effectively from month to month, then you need to be capitalizing on the returns you can make by paying your consumer debts (automobiles, boats, 4-wheelers, credit cards) as soon as possible. Once you have these debts paid off it’s time to finish off your emergency fund with another 2-5 months’ expenses. Put the emergency fund money in a very liquid, stable place. (I highly recommend ING DIRECT). After you’ve completed that step, begin working on having interest work for you in the other direction. Begin investing for the long run. A rich man has interest working for him, not against him.

I thought I’d expand on the six root causes of poor spending, as highlighted in “Money for Life”.

1. Loss of a psychological tie to real money.
2. Explosion of ways to spend money.
3. Inability to compare expenses to income.
4. Lack of training.
5. Advertising-driven consumption.
6. Easy access to consumer credit.

Loss of a psychological tie to real money
It seems people have lost their sense of the value of a dollar. It doesn’t hurt anymore when we spend money. The amount of cash that changes hands every day is growing ever-smaller. I’m no different. I use a debit card for the large majority of my transactions. It’s the same as cash - except for the psychological impact.

Author Dave Ramsey says that when you spend with cash it “hurts more.” Also, studies have shown that people spend an average of 18% more when they spend with plastic instead of with cash. McDonald’s doesn’t accept debit cards because it increases serving time (although it does). I’m betting they accept debit cards because people spend more.

How do you get around the danger of spending more with your debit card (we won’t touch credit cards here) because you aren’t using cash? If you operate under the guiding hand of a monthly budget then I think you’re okay. That’s how I justify my use of a debit card. My wife and I budget how much we’re going to spend in each category every month. If we stay under that amount, whether we used a debit card or cash to purchase things, we still stayed under and we’re happy. If we’re having trouble sticking to our budgeted amount for a specific category then we’ll take the cash out of our checking account for that amount and pay for those things in that category with cash. When the cash is gone, we’re done spending. Period.

Try using cash for one of your spending categories for a few months instead of your debit card. See if this 18% result applies to you also. You might find that you too spend more when the psychological impact of a transaction is removed.

Explosion of ways to spend money
Just recently I heard on the radio that Discover Card is partnering with a company that produces a system whereby you could process a transaction with a thumbprint. Woah. Discover Card introduced the keychain credit card which was just oh-so-cute. Instead of having to get out your wallet (psychological impact because of its association with money) you just have to take out your keys! Handy!

This is just one example of a new way to spend your money. I’m sure the thumbprint idea will become mainstream. Instead of having to pull out the keys, you just have to stick your thumb up against a screen. They’ll promote it as a consumer service to stop credit card fraud. That would be helpful. But their primary motive is to give you yet another painless way to spend you hard-earned money.

The internet has given us a great avenue for spending money. On this site how do I collect the money from customers when they purchase something? I use PayPal. The person simply has to enter their payment information. Convenience makes purchasing so easy, that people find themselves going through with it before they’ve evaluated whether they need or can afford what they’re purchasing.

Inability to compare expenses to income
One of the reasons spending has gotten out of hand is because people don’t know how much they’re spending. They get bank statements, credit card statements, online invoices…and if they took the time to add their outflows and subtract that amount from their inflows they would see that they are spending more than they earn. The only way to curb this is to know how much you make and how much you spend.

My wife and I must be weird. We have a little system to track our spending. We budget at the beginning of the month exactly how much we made last month. We lag a month behind. At any rate, we budget how much we’ll spend each month in each category. At the end of the day, if we’ve spent some money that day we’ll put the receipt(s) in an envelope that sits on our bedside table. Every few days we’ll enter the purchases into our YNAB Budget. After that, we usually throw away the receipt. It’s pretty darn simple.

Some people have it out for me when I tell them I save the receipts. They say that’s a waste of time. It’s cumbersome. It’s annoying. I don’t agree at all. While you’re watching TV, I’m taking five minutes to track my spending each week. It does not take long. Second, sticking a receipt in my pocket when I buy something, then emptying my pockets each night when I climb into bed is hardly cumbersome. It takes virtually no thought now. Sure, for the first week or so you have to get used to not throwing the receipt on the floor of your car, but after that it’s pretty much automatic. And it certainly isn’t annoying. What is annoying is having some broke person tell me that they think writing down everything I spend is stupid. That’s annoying.

When you know how much you spend, you will (1) spend less and (2) see any problems you may be having. If your credit card balance is slowly climbing then you are spending more than you earn. MyVesta says that the average American spends $1.22 for every $1 earned. Scary.

Lack of training
I readily admit that there should be some type of formal financial training given to students in high school. Most kids don’t even know how to balance their checkbook. They have no idea what interest is, how it works, and what it can do for or against them. The younger generation needs to learn about money.

However, before we point fingers at the school system for leaving out this necessary curriculum, why don’t we sit back and think about what we can do as parents? The education of your children is still your responsibility when it comes down to it. What are you doing to train your children to be good money managers? Are you a good example? Do you instruct them on proper giving, saving, and spending habits?

If you don’t feel qualified to teach your children about money then you need to begin training yourself. Begin now to educate yourself. Don’t take a passive, blame-everyone-else stance when it comes to learning about money. If your parents were lousy teachers when it came to money then I’m sorry - but move on! You decide what you want to learn. Turn off the television and begin acquiring some knowledge. It will pay you dividends in the end.

If people were just a bit more educated when it came to money, we would not have the rampant consumer problems we have today. The fact that you’re reading this article goes to show that you are anxious to learn something. I admire that. Keep it up.

Advertising-driven consumption.
It’s been said that 70% of purchases are impulse purchases. My wife and I were in a Macey’s grocery store looking for a frozen pizza. Guess what was right next to the pizza? Root beer. We bought some root beer. Retail stores are becoming ever-wiser in how they place items, what signs they put up, what types of promotions they offer and when, to whom, and for how long. I’m not going to delve into the topic of whether advertising is ethical or not. I think it serves a purpose. It lets us know what is out there. What I do want us to be aware of is that we do not have to succumb to the pressure that advertising can place on us. Buck the billboard. Can the commercial. Silence the salesman.

Half of winning the battle against the hoards of advertising that comes our way every single day is to be aware of it. Keep in mind that these people want your money. Protect your wallet as you would your life. Take pride in being able to withstand the enticements placed before you thousands and thousands of times each day. Just say no.

Easy access to consumer credit.
As soon as a high school senior applies for a college, credit card applications begin pouring in. I totally disagree with any institution for higher education that sells this list of applying freshmen to credit card companies. I think it’s totally wrong. They might say the money goes toward their education, or to a good cause, or whatever. I don’t really care. I wouldn’t want to use money that was acquired through such a practice. I think it’s mean and dishonest. I think schools owe more to their prospective students than to subject them to the pressures of credit card companies to begin “building credit.”

If you’re anything like me, you probably get several credit card offers per week. I heard a few weeks ago that someone’s dog was pre-approved for a credit card. Great.

The fact of the matter is the credit card companies know it’s just a numbers game. If they can get you to sign on, the odds of them making a good amount of money off you are pretty high. I know some of you probably use credit cards wisely, paying them off every month, gaining sky miles or whatever your “reward” may be. I choose to not use them at all. The overwhelming majority of Americans would be well served by destroying all of their credit cards–so that is what I promote here.

I don’t see this tidal wave of consumer offerings slowing down any time soon. Perhaps when interest rates rise we’ll see it ebb ever so slightly. Most people have simply made debt payments a part of their life. If you pay cash for an automobile you’re one of a small majority. If you don’t have any credit cards or have zero balances, you’re in an even smaller majority. It’s tough to withstand the pressure of 0% APR for six months, or six months same as cash type of deals. Withstand anyway! Just because credit is easy to obtain does not mean it is worthy of obtaining.

Keep these seven factors in mind as you begin managing your money. Start by saving one month’s expenses. Begin budgeting. Get out of debt. With no payments and a mastery over your money, these causes of poor spending won’t even be an issue and you’ll be well on your way to financial security.