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The Year of Living Below Your Means

What's the very last thing you might expect to read at a site dedicated to the art and science of stock picking? How about the truth that how well you invest may be insignificant in your quest for long-term wealth?

Say that again
You read that right. When it comes to getting rich, becoming a superior stock picker may be a part of the process, but it's far from the most important. The first step to a million is far more basic: Spend less than you earn and save the balance.

Problem is, so few of us actually do that. According to the Commerce Department's Bureau of Economic Statistics, average Americans were on a spending spree throughout 2006. And we've piled up billions in new debt as a result.

In other words, and with apologies to novelist and screenwriter C.J. Koch, 2006 was the year of living dangerously. Anyone want to bet we can keep this pace and not suffer dire consequences? Not me. I already see signs of trouble for free-spenders. Here in Colorado, for example, we're experiencing record rates of foreclosures.

The year of living below our means
What to do? How about making 2007 the year of living below our means? For me, that equates cutting the fat to retire at least half of our $60,000 in debt. That's an ambitious goal, to be sure. But there are dozens of ways for us, and you, to cut spending.

For specifics, I consulted the experts at our Living Below Your Means discussion board. Get all of their best ideas by reading this thread. In the meantime, here are a few of my favorite posts.

Fool community member johnmoni says recycling specialist freecycle.org can produce plenty of savings, a view shared by Motley Fool Green Light subscriber yddeyma. "I'm trying to get into the habit of using freecycle.org more for things I need around the house (current projects include rain barrel making and building a work bench for my garage). There are so many things you need that others want to give away that you should always check out Freecycle before you buy."

Gingko100, meanwhile, says to learn to cook. "Don't buy pre-packaged 'convenience' foods. They are convenient for your schedule, but not your budget." Plus, cooking, and using the leftovers for lunch, can save you the $7.50 or so daily that would otherwise go to the local lunch bucket. Over a year, that's hundreds that could be earning interest in a high-yield savings account.

The biggest debate on the board, however, was over when it's appropriate to negotiate for better prices. For some, it's OK to barter everywhere. For others, like Fool community member StockGoddess, it's best to stick to the big-ticket items.

I found her approach to car-buying particularly useful. "I look up the invoice on Edmunds.com. [Then], I look up dealers within 150 miles, call them all, and let them know they've got a week to come in first. Helps do it near months' end, too ... Or I just say: I am a VERY serious buyer. I would like to buy this car at invoice + x, and I'll be making a decision in the next few days. If you call me back first, you get the deal. Now I need to hang up and call these other 10 dealerships..."

The result? Not only did she get her best deal but the dealer, based 90 miles away, drove the new vehicle to her, closing the transaction without forcing her to leave her house.

That's impressive. But my favorite tip comes from Green Light subscriber sydkid. "I was happy to open a store credit card for a major purchase I had put money aside to pay anyway -- it was 0% for 6 months with a $400 gift card reward from Home Depot," our Fool writes. "I paid 6 weeks before the cut-off point, got the product I wanted, and used the gift card for additional items I needed for my project..."

By my count, that's four-and-a-half months of free interest for buying a product he needed anyway and for which he had already saved the money. Talk about living below your means!

Follow the money
Making the most of your money is a process that's best achieved by carefully analyzing spending and eliminating everything that isn't necessary. For some, that will mean cutting back on fast food. For others, it may mean negotiating for better prices on big-ticket items. For me, it means cutting interest payments on debt.

Whatever the cause of your own budget woes, resolve to make 2007 the year of living below your means. After all, it isn't stock-picking skill, but rather spending less that is the secret to real long-term wealth.

For more tips, consider Green Light. Therein, co-advisors Dayana Yochim and Shannon Zimmerman show you how to unlock the hidden fortune inside your paycheck. For example, Dayana uncovered $738 worth of savings from refinancing in the November issue. Need details? Click here to get 30 days of free access to the service. There's no obligation to subscribe.

Fool contributor Tim Beyers, ranked 746 out of more than 19,400 in Motley Fool CAPS, didn't own shares in any of the companies mentioned in this article at the time of publication. Get a peek at everything he's invested in by checking Tim's Fool profile. Home Depot is an Inside Value selection. You can bank on The Motley Fool's disclosure policy.


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Tim Beyers
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Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.

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