There’s nothing wrong with wanting nice things, but constantly spending more than you make is the fastest way to get in over your head in debt. Living within your means sounds easy, but it’s a mistake to underestimate its difficulty. It just means spending less than you make, so why is it so hard? Well, there’s a lot of factors like pressures from society, rising costs of living and lack of information. There is hope, however. Let’s take a look at things you can do to keep you living within your means no matter how the times change
1. Know Your Incomes
You have to know what your means are before figuring out how to live within them. Knowing how much you make isn’t as simple as checking your paycheck, though, and some people don’t even do that. Having an understanding of your salary or wages doesn’t mean you automatically know how much money you are getting. Taxes and interests can throw that number off. You need to know not only how much money you have coming in, but when it comes in as well.
Collect all of your bank statements and get them onto one spreadsheet. Calculate how much you make monthly and yearly. This knowledge will help you when making plans for the future. Don’t forget to include income from other sources like investments or anything that didn’t go through a bank like cash transactions.
2. Chart Your Expenditures
Now that you have a good idea of how much money you are making, it’s time to figure out where it’s going. Charting planned expenses like loan payments or housing costs are easy because they are the same every month and you know you are going to pay them. It’s the other expenses to have to get a lock on. The spontaneous and discretionary kind.
Track every dollar you spend and categorize it. Food, clothes, transportation, entertainment, gifts and so on. Try and take into account where all of your money goes so you can change the way you spend money.
3. Compare Your Expenses
Ideally, you want to be spending less than you are bringing in. If your expenses are higher than income, you’ll soon find yourself in debt. You want to have more than five percent of your earned income left over after you subtract expenses. Any less and you may end up with problems down the line.
That five percent or more you aren’t spending should go into a savings account for a big future purchase or an emergency. If you are saving considerably more than five percent, congratulations. You could comfortably increase your spending a little if you so desired. After all, unless you have a savings goal in mind or have nothing saved at all, there’s no reason to live beneath your means.
4. Get Spending Under Control
If you subtract your monthly expenses from your monthly income and you come up with a negative number, you’re in trouble. This drain on your funds can easily turn into debt, and you may find yourself forced with empty pockets. You have to find ways to bring those expenses down. It may not be easy, but it’s the only way.
First of all, figure out what’s important to you. Don’t spend money on things to impress others or achieve a lifestyle designed to display wealth. Competing with others won’t bring happiness, just debt. You have to love your life, not theirs.
Peer pressure can also be tough to shrug off, but you’re an adult, and you can do it. Running off and spending money with your friends whenever they want to is a great way to find yourself in debt. Your friends have different finances than you. They don’t understand your incomes, but you do, and it’s up to you to make the hard decisions that ensure you are living within your means.
Also, find ways to cut corners. Food expenses too high? Buy in bulk and prepare more of your own food. High gym fees? Research ways to exercise outside in nature using body weight instead of expensive equipment. High clothes expenses? Shop at a thrift store or liquidation outlets. These little cuts to your spending will add up and put you in the black before you know it.
5. Figure Out Your Wants and Needs
When cutting things out of your expenses, finding costs that you can eliminate entirely well help a lot towards living within your means. Every time you pull out your wallet, ask yourself, “Is this something I need or just want?” Could you go without it for a weekend? If the answer is yes, you probably don’t need it. If it is something you really want, wait a weekend anyway. When your impulse is gone, you may find you didn’t want it after all.
6. Cash Yes, Credit Know
Credit card companies are not your friend. Credit cards can be convenient, but they are designed to milk you for your money. Always pay in cash when possible and reduce or eliminate your use of credit cards. It can be tough; it is super convenient. But you can’t let that bring down your savings goals. If you have to, call your credit card company and put a freeze on your cards. Take advantage of the fact that your impulsive side can’t plan ahead.
7. Don’t Forget To Live
Remember, living within your means does not mean depriving yourself of good things or experiences. It just means spending less than you make. If it fits your spending plan and leaves enough at the end of the month for your savings, splurge on that thing you wanted. Don’t live below your means if it isn’t necessary.
Money may not buy happiness, but going without it can be pretty depressing. You earned your money, so you should be able to spend it. Just don’t spend so much that you find yourself in a debt hole. All of those nice things you want will disappear quickly if you have to try and dig yourself out.