“Annual income twenty pounds, annual expenditure nineteen pounds, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds, nought, and six, result misery.”

The Micawber Principle teaches what we all think we already know, that we should live within our means and failing to do so is the beginning of financial difficulty. It seems fairly obvious but until you do the numbers, you might not realize in what areas you are, in fact, living beyond your means – something that will eventually snowball into real debt struggles.

Start by making a budget. List all expenses that are unavoidable and necessary such as rent or mortgage payments, utilities, car payments, fuel, food and other household expenses regularly incurred. Compare your monthly expenses to your income, if you still think you look like you are in pretty good shape, then make the list that really counts.

Track all your expenditures daily, not the big items from your budget but the little expenditures you don’t think about. Cups of coffee, eating lunch out, birthday gifts, movies, impulse buying… you’d be surprised how these little items add up. Now look at how many times you pulled out a credit card to pay for one of these expenses, probably because you didn’t have the cash available and count in the interest.

Chances are, you will find that without realizing it, your expenditures regularly exceed your income. By putting this purchase on one card and the next on another, you spread the debt around and so it doesn’t appear to be growing very much. But over time you are keeping yourself in debt, even if you manage to juggle the money around to meet all the minimum payments.