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« Good Stuff from Around the Web (and a Question for You) | Main | Help a Reader: Good Time to Refinance? »

September 18, 2008

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The cushion or financial slack in your personal budget is crucial to riding the economic storm.

Not everyone has slack in their finances. In a lot of cases there is no slack and the people end up in the red at the end of the month.

To combat this people should use the accounting concept of 'Prudence'. This basically means that you over estimate your expenses and you under estimate your income. You then train yourself to survive on the new lower income.

The net result is that after a couple of months of living like this you will have created a cushion or slack in your budget. The reason why is because your expenses come in lower than you thought and your income is higher than you thought. The key here is to trick yourself into thinking that there is scarcity and then responding appropriately.

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