If you have any doubt that Americans love their credit cards then all you need to do is look at the latest Federal Reserve figures showing that we have nearly $860 billion worth of credit card debt to our names. If this doesn’t show that Americans are addicted to shopping, nothing does. Sure, shopping and spending is great for the economy but it’s led to more debt and financial struggles than most people can handle.
If you’re one of those people and you’re having trouble living within your means and paying off your debts, the tips below will hopefully help you to get your finances back on track, pay down those debts and keep them down for the long-term. Enjoy.
First things first. You need to know exactly what your income is and what your expenses are on a monthly basis. If you don’t know these two numbers there’s literally no way that you’re going to be able to figure out what to do in order to get your debt paid off, start saving and put your financial ship back on course. The difference between what you make and what your fixed expenses are (mortgage, energy bills, and any other bill that you must pay every month) is the money that you have for discretionary expenses as well as putting into savings and a retirement account.
The fact is that most people have more than enough to pay for their fixed expenses but, when it comes to their discretionary expenses, they overestimate what they have and underestimate the effect that purchasing tons of unneeded stuff on credit is going to cause.
Tracking your expenses, something that financial experts call a ‘budget’, is one of the single best ways to make sure that you live within your means. If you don’t know what a budget is you’re either new to our blog, very young or have had your head in the sand for a very long time. A budget is simply a spending plan and it allows you to keep track of your money, your progress in paying off your debt and, in most cases, will show you exactly where you are overspending and wasting money.
Simply put, creating and using a budget is the best and practically the only way to rein in your spending, get your finances in order and put money aside for retirement and emergencies.
Something that is vital to any financial plan and will allow practically anyone to live within their means is to know the difference between a ‘want’ and a ‘need’. A need is something like food, insurance and gasoline for your car. A want is a new smart phone when your current smart phone is working perfectly, a large, fast car when a smaller, more economical car will do or 25 pairs of shoes. Frankly, the average person is deeply in debt because when they want something, they purchase it. If you can cure yourself of buying things that you simply want, you’ll be well on your way to living within your means.
One huge mistake that many people make is to try and compete with their family, friends and neighbors. (Hey, we’ve done that too so please don’t think that we’re pointing fingers.) just because your brother has a nicer car, your neighbor lives in a bigger house or your colleague has a better smart phone doesn’t mean that you need those things and the fact is that your brother, neighbor and colleague are probably living well beyond their means as well. If you want to follow them into debt that’s your choice but we’d suggest that, instead of trying to compete with them, you put your money into investments, savings or a retirement fund.
One of the best ways to live within your means is simply to make all of your purchases using cash or a debit card. It’s very hard to overspend when you pay with cash because, if something caused $50 and all you have in your wallet is $35 there’s no possible way to purchase it. Here’s a great example: if you want to buy a new flatscreen TV that costs $600 and you diligently save $100 a month for six months to get it, you’ll save nearly 50% because, if you purchased it with a credit card and took two years to pay it off, you’d pay practically another $300 for the same TV. From electronics to clothing, automobiles, household goods, sporting equipment and practically anything else, paying for these items in cash will save you a huge amount of money.
Here are a few more quick tips that will help you to live within your means, pay down your debt and keep from building up new debt and allow you to get back on financial track.
- My things used. From cars to electronics to sports equipment, there are many ways to purchase perfectly good items that have been gently used and doing so will save you big bucks.
- Cancel any memberships that you don’t use on a regular basis.
- When it comes to cable bills, smart phone plans and any other service plans, cut them back to the bare minimum that you need to get by. Many people waste tons of money for cable TV plans and hundreds of channels when all they watch is a handful of them. The same can be said for smart phone bills as well.
Listen, many people think that living within their means are code words for living like a pauper. Indeed, many liken a budget to a diet and believe that both terms mean that they will have to deprive themselves of something. The fact is, while a diet does mean that you’re going to need to deprive yourself of fatty, salty foods that are bad for your health and increase your weight, a budget simply means that you spend more intelligently. For example, increasing the deductible on your automobile insurance in order to lower your monthly costs or inviting friends over to watch the football game on your TV rather than paying big bucks to go see it the stadium.
It’s not about deprivation, it’s about spending wisely and staying out of debt.