Jillian sums out how to save and invest your money in six words. Grow the gap. Guard the gap.
What's The Gap?
The ‘gap' is the space between your income and your expenses. For example, if you earn $4,000 a month and spend $3,800 a month, you have a $200 gap. If you earn $3,500 a month and spend $3,900 a month, then you have a negative gap number of $400. A negative gap number like this means you're in the red every month and overspending. You want your gap number to be in the positive and grow.
Income – expenses = your gap number
If I could give you all six words that sum up how to be good with money, in a nutshell, it would be these six words.
Grow the gap. Guard the gap.
Grow Your Gap
The space between your income and expenses is where you grow your financial freedom. To grow the gap you want to look at both your income and expenses.
First Step: Reduce Your Expenses
Jillian breaks down expenses into three categories.
- Fixed expenses: this is everything you get a bill for each month. To reduce these expenses you can try to negotiate your bills or look at cutting your monthly subscriptions you don't use.
- Flexible expenses: these can be consistent every month, like groceries, but the number may change. Flexible expenses can be reduced by changing habits and watching the price tag of what you buy. Going out to eat is the perfect example for this. If you go out to eat once a week for a whole month, your food bill with probably be high. You can cut this habit in half by going out twice a month and grow your gap number.
- Debt Repayment: these are the bills you want to pay off eventually. To reduce your debt you can pay it down over time or aggressively. Jillian suggests you also consider what the debt is attached to. If you have a car loan, you could sell the car to purchase one in cash and remove this expense.
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Second Step: Increase Your Income
It's only fair that you look to change both parts of the gap number equation. You can only reduce expenses so much. Increasing your income is a great way to quickly grow your gap number.
Often times the fastest way to increase income is to switch jobs and move to a different company.
You could also consider earning more income through additional work. This could be a side hustle or taking on overtime at your current job.
One of the things I love about the gap, is that it's one of the numbers we have the most control over. There are so many levers that can control it.
You have many different ways to approach growing your gap number. It's a strategy that can work for all types of families and individuals.
How To Guard The Gap
Jillian suggests you have a money date once a month to examine your gap number. This will help you to grow it, but also set time aside to guard it.
Guarding the gap is hard, and Jillian wants you to know this from the start. Extra money every month makes it so easy to upgrade items and spend money. The American consumerist culture encourages this.
To really protect this gap, you'll need to focus on your spending values. Be ok with saying no to expectations and assumptions about what you should spend. Jillian uses this example:
When we adopted our three kiddos, our family went from 1-5 kids in 2 years. It was like a Disney chorus, everyone on set was all singing “When are you going to buy a bigger house? When are you going to buy a bigger house?” It was just an assumption. Of course we are buying a bigger house. Of course we are doing it soon…The reality is, it was tight. We had seven people, we were in 1,650 square feet. For us, moving into something that would be larger and a similar level of quality would be an extra $1,000 a month. It just didn't seem worth it…I looked at the extra $1,000 a month and thought there's a lot of other things that would be more enjoyable to spend $1,000 a month on.
Jillian guarded her gap. She said no to a bigger home. Instead, she used the money for things that her family values, like trips and eventually buying a camper.
What Should You Do With The Gap Money?
You're guarding the gap money for a purpose. It can't just sit there. So where does it go?
Jillian says to use the money for these three things:
- Pay down consumer debt. This includes car loans, student loans, and credit card debt. By removing this you can grow your gap even more.
- Build an emergency fund/life transition fund. You need some money set aside for when things in life go wrong. You can also think of this money as a cushion for big life transitions like moving or switching careers.
- Save up for large purchases. Paying for things in cash means you're not taking on debt and crushing your gap number.
- Invest the money. Saving for the future is essential for your financial freedom. Use your gap money for long term goals like retirement.
If you can grow your gap and guard your gap, everything else will figure itself out.
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