“My worst spending disaster was paying for goal-tending pads with credit. It took me two years to pay them off and cost as much as renting a studio apartment for five months. :-( And, I don’t even play hockey anymore.” ~ Billy

“The idea of spend less than you earn has been around for more than 200 years.”

It’s true. Ben Franklin was the one who said it, actually. And it’s a great philosophy — one that you can use to guide your earning and spending. Don’t fall into the trap of believing that a huge amount of debt is a normal part of life or that living within your means is lame. Advertising is set up to make you feel that way — so you keep on buying stuff. Listen to Ben instead. With his rule, you can actually get ahead.

How to spend less than you earn

Before you can figure out what to spend, you need to know what you’ve got coming in and if it’s enough.

Do that in three basic steps:

• Get money in the bank.

This seems so obvious, but it can be pretty difficult if you’re just starting out. Income comes either from earning it yourself or getting it from someplace else. Once you have it coming in, put it in a checking account from where you can write checks, automate your savings or withdraw cash from an ATM. Make it your goal to have a little left over every month. And if your bank account balance is going up, congratulations! You're spending less than you earn, which is that critical first step.

• See also: Banking

• Calculate your after-tax income.

Let's say you get a job that offers you a $35,000 annual salary. This is called your gross income. You are not actually going to see your gross income, because a chunk of each paycheck will go to federal and state income taxes, Social Security and Medicare. The easiest way to know your actual take-home pay, your net income, is to look at your first paycheck. Or you can try to calculate what taxes are going to be based on your income. The trick is to avoid guessing or over-estimating how much you will get paid each month.

• See also: Withholding and estimated taxes, Income tax returns

• Know how much you need to cover the basics.

Your basics are all the things you "need" to be paying for — what you absolutely cannot live without. If you have rent and monthly student loan payments, those are needs. If you have to have a car to get around, you need maintenance, gas and insurance. You need to have health insurance to cover yourself if you get sick or injured. You need to have money for groceries and clothes. It's easy to confuse what you need with what you want, so you want to spend time really thinking about what it is you need and what you can live without. Writing a budget will help you do that.

• See also: Insurance, Loans, Budgeting

Revisit this Essential during these Life Events

These life events are good opportunities for you to look at whether you’re spending less than you earn and make any adjustments:

• Leaving school
• Evaluating a job offer
• Starting a job

Words to know

Unsure about something you read? Many of the financial terms you came across in this article are defined in our financial glossary. A-Z Glossary

Next up: Rule your work life

You've mastered this lesson, so now it's time to learn about ruling your work life.