Living Within Your Means
- By David Beart
- Published 10/8/2008
- Finances
- Unrated
Living with your means involves cutting expenses so that there is money left over at the end of the month and expenses do not exceed income. Careful budgeting can help one to enjoy the benefits of living within your means, including reduced interest rate charges and the ability to save money for emergencies or special purchases.
The cornerstone of living within your means is to develop a budget plan. You must know how much money you are spending every month on all of your expenses in order to determine where you may be able to save money. Write down all of your bills, along with all of the miscellaneous purchases that you make every month and tally them.
Avoiding the dangers of unconscious spending can also help you to live within your means. Many people spend far more money than they realize on this type of spending. These are the purchases that that may be small in nature but add up over time. Those impulsive buys while waiting in line, for example, can often add up to far more money than you might realize.
In addition, make sure you keep an eye out for fees, such as ATM fees, that commonly add up on a monthly basis. Keep track of such fees as well as all of your expenses. Even a small notebook or journal that you can slip into your pocket or purse is a good way to keep up with such expenses. Do this for about a month so that you have a clear idea of where your money is going.
Once you know where your money is going you can then begin working towards setting up a savings fund. This is the second hallmark of living within your means. When you do not have money set aside and emergencies strike, you often feel forced to charge items and that can make it even more difficult to live within your means. The general rule of thumb is that you should have a minimum of 10% of your monthly gross income set aside for emergencies. It is simply much smarter financially to save money for expenses or even for special purchases than to make them by credit card.
Keep in mind that this is in addition to any funds you may have set aside for retirement or for college savings. The more money you are able to save now, the less you will have to borrow later and the better you will be able to live within your means.
Remember that even when you receive what seems like a good rate on a credit card, it is still not free money. You must still pay above and beyond the purchase cost for any item you charge because of interest payments. Although credit cards can be convenient, they can also be expensive. The longer it takes you to pay off a credit card, the more money you will spend over the long run. As a result, a pizza that you charged for $20 could end up costing you $100 or more if you make only the minimum monthly payments and it takes you years to pay off that bill.
The best method is to make sure that you pay for everything you buy with cash rather than credit. While that is not always possible, it is best to try to stick to that goal as closely as possible. When you must charge something on a credit card, make a concentrated effort to pay more than the minimum monthly payment every month. Even better; try to pay off your credit card balance every month. Avoid carrying more than one credit card balance at a time to prevent balances from growing out of control and reaching a point where you have a difficult time making the payments.
Avoiding the rental of products can also help you to live within your means as well. Renting an appliance can seem like a good idea at first because the weekly rental rates are often cheap. Rental agreements are usually often attractive to individuals without the best credit because no credit checks are required for renting. Once you add up the costs of all those weekly rental fees, it becomes apparent that renting something actually costs much more money than just waiting until you can purchase it using cash.
If you find that your debt level has spiraled to the point that you are no longer able to make your minimum monthly payments and set aside money for savings, consider investigating a consumer credit counseling service to help you get matters under control. These programs can help you to devise a realistic repayment plan that is within your ability to pay and offers you a way to begin paying down your bills.
The cornerstone of living within your means is to develop a budget plan. You must know how much money you are spending every month on all of your expenses in order to determine where you may be able to save money. Write down all of your bills, along with all of the miscellaneous purchases that you make every month and tally them.
Avoiding the dangers of unconscious spending can also help you to live within your means. Many people spend far more money than they realize on this type of spending. These are the purchases that that may be small in nature but add up over time. Those impulsive buys while waiting in line, for example, can often add up to far more money than you might realize.
In addition, make sure you keep an eye out for fees, such as ATM fees, that commonly add up on a monthly basis. Keep track of such fees as well as all of your expenses. Even a small notebook or journal that you can slip into your pocket or purse is a good way to keep up with such expenses. Do this for about a month so that you have a clear idea of where your money is going.
Once you know where your money is going you can then begin working towards setting up a savings fund. This is the second hallmark of living within your means. When you do not have money set aside and emergencies strike, you often feel forced to charge items and that can make it even more difficult to live within your means. The general rule of thumb is that you should have a minimum of 10% of your monthly gross income set aside for emergencies. It is simply much smarter financially to save money for expenses or even for special purchases than to make them by credit card.
Keep in mind that this is in addition to any funds you may have set aside for retirement or for college savings. The more money you are able to save now, the less you will have to borrow later and the better you will be able to live within your means.
Remember that even when you receive what seems like a good rate on a credit card, it is still not free money. You must still pay above and beyond the purchase cost for any item you charge because of interest payments. Although credit cards can be convenient, they can also be expensive. The longer it takes you to pay off a credit card, the more money you will spend over the long run. As a result, a pizza that you charged for $20 could end up costing you $100 or more if you make only the minimum monthly payments and it takes you years to pay off that bill.
The best method is to make sure that you pay for everything you buy with cash rather than credit. While that is not always possible, it is best to try to stick to that goal as closely as possible. When you must charge something on a credit card, make a concentrated effort to pay more than the minimum monthly payment every month. Even better; try to pay off your credit card balance every month. Avoid carrying more than one credit card balance at a time to prevent balances from growing out of control and reaching a point where you have a difficult time making the payments.
Avoiding the rental of products can also help you to live within your means as well. Renting an appliance can seem like a good idea at first because the weekly rental rates are often cheap. Rental agreements are usually often attractive to individuals without the best credit because no credit checks are required for renting. Once you add up the costs of all those weekly rental fees, it becomes apparent that renting something actually costs much more money than just waiting until you can purchase it using cash.
If you find that your debt level has spiraled to the point that you are no longer able to make your minimum monthly payments and set aside money for savings, consider investigating a consumer credit counseling service to help you get matters under control. These programs can help you to devise a realistic repayment plan that is within your ability to pay and offers you a way to begin paying down your bills.
David Beart
David Beart runs the Professors House. This site contains a wealth of information about money management, raising children and relationships.
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