Living Within Your Means

Image of man lighting cigar with cash

Most people have a small desire to want the "finer things" in life. Big houses, new vehicles, expensive furniture, large flat screen TVs, and the list goes on and on. At the end of the day, these things do not define us, nor should they be a measurement of our success. Yet, so many people get into debt because they feel that they simply MUST possess these things.

What exactly does this live within your means?

Everyone has their own unique perspectives on life, debt, happiness, and what it means to "live comfortably". So, there's really no definitive answer, but making simple changes to the way you manage your finances can help you avoid over-spending and live within your financial capabilities. You must adjust your budget so that the sum of your expenditures is less than your income. That way you are able to avoid over extending yourself and incurring debt, and hopefully begin saving money to prepare for unforeseen circumstances, vacations, and holiday expenses. An easy way to accomplish a budget that fits well within your means begins with some self-deception. Prepare your budget as if you only make 90% of your actual income. For example, if you earned an annual income of $30,000, you would base your budget on only 90% of that figure - $27,000. All of your expenditures, your housing payments, car payments, food costs, utilities, etc., would be subtracted from $27,000. In this example, the $3000 that exists outside your budget could be placed in a savings account in an effort to accomplish your financial goals. By excluding 10% of your income from your budget, you'll be able to avoid spending more of your money than you should on day-to-day expenses, and give yourself some working capital to use in planning for your future. It's no coincidence that financial experts recommend that you save as close to 10% of your income as you are able.

Make a list of the goals that you want to achieve. Include everything from buying a new computer to owning your own home. On this list, include all of your short-term goals and your long-term goals. Short term goals will ideally be accomplished within a year's time, and long term goals could be anywhere from a year to ten, twenty, or thirty years. This list can change at any time; as we change, so do our goals. When you see your goals written down, it makes succeeding or failing to meet them more of a reality. You may know that eventually you will want to buy a new computer with all the expensive bells and whistles, but without a budget, you'll be out of luck when your computer dies and you don't have any extra money saved for a new one. Would you have money for even a cheaper model for a quick replacement? A down payment on a home can be anywhere from 20% to 27% of the total value of the home. Without saving well in advance, that down payment on is going to be very difficult to come up with.

That same savings could also come in handy when you're faced with unforeseen, but common expenses. What if your car breaks down unexpectedly? Of course you need your car to get to work, so it's important that it gets fixed right away, but if you don't have the money to pay the mechanic, it could be a long time before you're able to have reliable transportation again. Having a nest egg could be beneficial in many other situations such as medical expenses, and the loss of employment. These things are almost impossible to predict, and detrimental when they occur. An honest budget is the only way to start to prepare for these circumstances.

By saying we suggest a budget, we are not saying that you need to deprive yourself of a normal lifestyle - you should be free to enjoy your life and reward yourself for your hard work. If you receive a raise or promotion at work, enhance your living standard enough to feel the reward, but remember to keep your goals in sight. Here are some tips to stay within your means:

  • Take a look at your current spending habits. You can probably find some areas that could be fine-tuned.
  • Review the money you spend out of habit. Let's say you spend $10 a day on lunch at work. If you bring in your lunch, you could probably cut that cost by 1/3, saving three dollars every day, or $60 per month. Little changes such as these can help to free up income for long-term needs. ? Hoping to win the lottery by playing every day? Those things can add up over time. Cutting out your daily $2 scratch ticket may not seem like a lot at the time until you realize you're saving $60 a month. Let's face it, you're winning money back, yes, but at what actual cost? Make sure you add these into your budget under your expenses to see how they impact your monthly and your yearly savings capabilities.
  • It's going to be difficult, but cut out those hard-to-break habits! Are you a smoker? Consider saving that $10 that you could have spent on a pack of cigarettes and put it into a binder, or a box, or a jar. Anywhere! Wait a month and see just how much money you'll have. One pack a day could be around $300 dollars in a single month. You could be saving almost $4000 a year! It's not the immediate gratification we want, but cutting back on those small, every day expenses is how you're going to live within your means, and still have enough money saved up for expenditures.
  • Do your best to prioritize your spending. You may find that making simple changes actually allows you to live more comfortably. For example, if you have premium cable and you're rarely home, you might want to get basic cable service and apply your savings to your new budget plan. Many people are completely cutting the cable cord, and switching primarily to online streaming services that charge a fraction of the price. Turning on the fan instead of the air conditioning seems easy enough, but at the core it's about your willingness to change your habits. What do you really need versus what do you really want? Your cellphone broke and you may NEED a new one, but if you find yourself really WANTING to get the latest model. An older phone could fulfill the necessary purpose at a much lower price allowing you to keep the difference and add that to your growing savings.

Saving money could bring you as much enjoyment (if not more) than spending does, since it directly impacts your future and your family's future. By living within your means, you take control of your finances and structure your life. The money that you're saving is going to be the cornerstone of achieving all of your financial goals.