Follow This Rule To Always Stay Ahead of Your Finances

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New data from Bankrate shows that only 39% of Americans could easily cover an unexpected $1,000 expense. That’s the kind of expense money expert Clark Howard calls the “oops” in life. And an “oops” could cause you long-term financial damage if you have to borrow money (even from yourself) to cover the expense.

Secret to Money Success: Spend Less Than You Make

While living within your means sounds like a simple concept, it can take people years — even decades — to realize the impact this idea can have on their lives (some people never do).

Until you are able to spend less than you make, you will never truly reach financial freedom: the ability to make your own decisions, when you want to make them, without having to rely on someone else’s approval (like say, the bank, other lender or even a family member).

Living within your means requires you to pick and choose. Maybe you take one less vacation or limit how often you go out to eat. Or maybe you meet friends at a restaurant but eat before you go so you aren’t stuck with a big bill when everyone splits the check. You can have a social life without draining your wallet; it just takes some prioritizing and a little strategizing.

Reality Check

If you want to get on the quickest path toward reaching your goals, you have to start living below your means. And the best way to do that is to start paying attention to what’s going on with your money so you can keep your priorities in line.

Decide what’s most important to you and start saving for those things. A few examples: building an emergency savings fund, paying off debt or buying a house or a car. By making your goals a priority, you give yourself a much better chance of reaching them — and on your own timeline, which is key.

The Risks of Not Saving Enough Money

Regardless of your income, there are always ways to reduce costs in order to put money into savings.

One big problem many people face is the psychological barrier — prioritizing present needs and wants over future needs. No one expects an emergency to come up, so it’s easy to assume that there will always be more time to save later.

But that’s a counterproductive mindset. Why?

First, time is money: The earlier you save, the more time your money has to grow. So even if you save a lot of money down the road, it still won’t be worth as much as the money you save now.

Second, emergencies (those “oops”) do happen. And the reality is, if you don’t have the money to cover it, one unexpected bill can end up causing you major, long-term financial damage.


In fact, it’s often those smaller, unexpected expenses that can cause you big problems — things like small car repairs, home maintenance and health-related bills. If you aren’t prepared and have to use a credit card to pay for that kind of expense, it can quickly turn into big debt.

“Our analysis shows that most families will be faced with a significant and possibly destabilizing unexpected expense at some point, said Clinton Key, a researcher for The Pew Charitable Trusts’ financial security and mobility project. “It’s critical for families to build emergency savings.”

How To Get Into the Habit of Spending Less and Saving More

1. Pay Yourself First

No matter how much money you make, if you don’t make saving part of your routine and monthly budget, you will very likely reach the end of the month and realize you’ve spent what you had planned to save.

So save money before you do anything else. Figure out how much you can afford to save each month (which may require reallocating the budget and/or reducing costs), and then have that money sent automatically into a savings account so you don’t give yourself the chance to spend it.

Bottom line: your financial well-being should be your #1 priority, and paying yourself first forces you to make that happen.

If your budget isn’t working, try the CLARK Method. Here’s how to get started.

2. Get More Out of Your Hard-Earned Savings

If you’ve been with the same bank for years, it’s time to reevaluate your options — especially if that bank is one of the “monster mega” banks.

If you shop around for the best deal at different financial institutions, there’s a good chance you’ll save some money.

Most people stick with the same bank for years because they just don’t want to deal with the hassle of moving everything, but it can be a lot easier than you think.

Try an Online Bank

Online banks have started offering higher rates on savings accounts, so why not move your savings to take advantage of the bigger return?


To give you some context, as of February 2021, online bank Ally offers 0.50% interest on its savings accounts, while the best rate on a regular savings account at Bank of America sits at only 0.05%!

That’s a HUGE difference. So even if you aren’t ready to switch banks altogether, at least moving your savings can earn you more money.

How To Keep Your Savings on Track

Once you get yourself into the habit of saving money, there are additional steps you can take to avoid big setbacks.

Don’t Rely on Credit Cards

You should never use a credit card to cover the cost of an emergency. Credit cards often come with pretty high interest rates, so if you swipe a credit card to pay for an emergency, you will just end up facing a bigger bill down the road. And the bigger the bill, the longer it will likely take you to pay it off, which will then not only cost you more in interest but could also damage your credit score.

One example is medical debt. You don’t want to put an unexpected medical bill on a credit card. You’re much better off negotiating a payment plan with the hospital or provider than putting the bill on a credit card.

Build an Emergency Savings Fund

The best way to save for unexpected financial shocks is to have an emergency fund.

“If you don’t have savings, then you’re not prepared for the ‘oops’ in life,” Clark says. “Because ‘oops’ happen — all different types and sizes — and a lot of times we’re not in a position to deal with them.”

It’s great if you can eventually store six months’ worth of expenses in an account that’s easily accessible. But your first priority as a saver is to just start somewhere.

The best way to approach saving is to start with baby steps and then build up from there. Also, one important thing to remember about emergency savings is that the money should be easily accessible if you ever need it — like in a savings account.

Read Team Clark’s complete emergency fund to learn more.

4 Ways To Kickstart Your Savings

1. Reduce Your Expenses

There are tons of little ways to reduce your monthly expenses and still maintain your same lifestyle. From cable bills to everyday spending habits, here are some tips and tricks to immediately reduce your monthly expenses:


2. Increase Your Income

There are plenty of ways to earn extra cash. Bringing in some extra money each month can be a great way to fund your emergency savings account without having to cut out other areas of your budget. Here are 20+ easy ways to make extra cash each month.

3. Continue Paying Off Debt

Don’t ignore the debt you already have, because that will just end up costing you more and probably damage your credit score. Start with the credit card that has the highest interest rate and put as much money toward that debt as you can each month, while still setting some aside for your rainy day fund. Then once that card is paid off, move to the card with the next highest interest rate.

For more guidance, see Team Clark’s Steps To Eliminate Credit Card Debt in 3 Years or Less.

4. Keep It Separate and Make It Automatic

Once you cut back on your spending and start to have some spare cash, it’s important to keep it in a safe place so you won’t spend it. So if you don’t already have a savings account, open one. Then budget out how much extra money you will have each month and set up an automatic direct deposit from your paycheck for that amount. That way the money is put into the savings account before you have a chance to spend it.

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