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Living within Your Financial Means

It may sound like an oft-written cliché, but when it comes to managing your money there is no better guidepost to follow. Of course it’s the American way to spend more than you make and, as we’ve seen with the recent surge in home foreclosures, it can lead to personal financial disaster.

So, let’s brush up on some ways to help live within your means:

Pay Yourself First

The best advice I ever read was to pay myself first. This means putting a certain percentage of your paycheck into saving and another percentage into retirement accounts. The percentage varies for each person according to what is comfortable but 10 percent is a good rule of thumb to follow. By putting this money aside first, you can then pay all your bills and spend whatever is left over without guilt!

Maintain a Regular Monthly Budget

Its real simple; if you spend more than you make you will go broke! So set up a simple monthly budget, including the money you pay yourself first, your regular monthly expenses and your “discretionary” expenses. Look for all ways you can to reduce the regular expenses; by keeping your budget in front of you as you review actual versus budgeted expenses each month you many find some easy targets or decide on sacrifices that need to be made. You can’t track what you don’t measure, so start by just getting a clear handle on what you spend each month and use those figures to set your initial monthly budget.

Pay Off Outstanding Debts

The only debt you should have optimally is home financing/mortgage debt. Car loans are a necessary evil for some people, but all other credit card balances and non-secured personal debt should be paid off regularly. The only way to avoid high interest, non-tax deductible consumer debt is to pay off the balances each month. If don’t have the discipline or financial wherewithal to do this you need to make changes immediately in your monthly expenditure; this is one sure sign that you are spending more than you make.

Increase Your Income

Many people neglect to consider this option. Start a part time business or brainstorm together with your partner on creative ways you could generate extra income to meet your monthly expenses or increase the percentage you are able to pay yourself each month. If you aren’t satisfied with your current income, it may be time to look for new employment; turbulent economic times can often lead to career changes that may bring pay increases down the line.

Evaluate Every Purchase

While I believe in the saying “Penny Wise and Pound Foolish”, I have also managed large corporations, where you quickly learn that every penny saved adds to the bottom line. If you live in a cheap apartment and drive an expensive car you may want to re-evaluate your priorities. On the other hand, if you have a drink at Starbucks every day, that’s as much as $150 a month; nearly enough to lease a cheap car! Make it a game to find ways to save a little here and a little there and you’ll find it can add up to big savings you can invest or spend on higher priority purchases.

Take Baby Steps

You’ve already taken the first step just by reading this article. Don’t try to overdo things at first; as with any major life change, getting used to living within your means requires a little practice and a lot of determination. It’s like quitting smoking, dieting or exercising regularly; at first it hurts but then you realize you feel much better once you really decide to do something and stick with it.