Tag Archives: spending plan

How to Live Within Your Means

5 Feb

how to live within your meansYou do realize that you have to live within your means because spending more than you earn is unsustainable. Yet you don’t seem to be able to get out of debt.  It feels like you are trapped in the vicious circle of minimum payments, accumulating more debt, paying off some of your debt but then “having” to use credit again… and it starts all over again. Sounds familiar? You are not alone. The average household consumer credit card debt in the US is about $15,422. You do have a choice. You don’t have to try and fund a lifestyle you want but cannot truly afford.

      Distinguish between wants and needs. Our instant gratification culture teaches us that we can have anything. And we can have it now. We are also wired to believe that if we really want something that must mean we need it. And credit cards are the enabler. So to avoid buying unnecessary items, always ask yourself if something is an absolute necessity or something that you think would be nice to have. Create a mental questionnaire that you go through every time you are about to make a purchase. And apply it to everything. With a little bit of practice, this decision process will eventually become second nature and you will be able to apply it in all kinds of situations. You may even discover that there are opportunities for limiting unnecessary expenses in areas that you did not even think about such as groceries for example.

      Know yourself. Not only is your financial situation different than your neighbor’s or friend’s but so is your personality and your ability to “resist temptation”. In terms of spending that is. Even if it may be difficult to admit, you probably know if you are a spender and cannot really accomplish Step 1 above. If that is the case, purposely stay away from shopping temptation, or do not carry your credit cards with you, or come up with whatever works for you to keep your mind occupied and keep you away from trouble.

      Set limits on spending and track your expenses. If you don’t already track your expenses, you should make a priority to do so. It is imperative you have clarity on how much you spend every month on groceries, clothing, paying bills, entertainment etc. Having just a rough idea is not enough. Sometimes what you think you spend in certain categories and what you actually do may be what causes you to live above your means and “supplement” your income with credit. Once you know how much you spend, set a limit on expenses.

     Have an emergency fund. Very often we use credit not for wants but because we have to cover urgent and unexpected expenses. Those are inevitable. Life happens and even if you are very disciplined about sticking to your spending plan, there will be surprises. Therefore, all experts agree that everyone should have at least 3-6 months of living expenses in an emergency fund. Keep in mind, this is the minimum. It is however absolutely mandatory to have an emergency fund if you don’t want to be forced to rely on credit.

      Don’t get caught up in consumerism. Stuff is just stuff. One of the most important ways to ensure you live within your means is to focus on living simply, being happy with less. Remember that the best things in life are free. Reevaluate how you spend your free time. Are you indulging in material possessions to keep up with the Joneses? Take a moment to answer all these questions truthfully. Refocus and find simple and meaningful pleasures that don’t get you in debt. Then you will know you have learned to live within your means.

What do you live within your means? Please share in the comments section below what works and doesn’t work for you and your family.

 

What Do Diets and Budgets Have In Common

28 Sep

What Do Diets and Budgets Have In CommonDid you know the US government has a list of the most popular New Year’s resolutions? No, this is not some form of “Big Brother watching” way of keeping track of the goals we set for ourselves but a list of most popular resolutions with links to useful web resources to help achieve them.

To no one’s surprise, a big percentage of the resolutions on the list are related to two coveted outcomes: to be physically and financially healthy.

Most everyone has been taught that one of the main methods to achieve financial health is to create a budget and stick to it. Same goes for physical health – get on a diet and stick to it.

So what do diets and budgets have in common? They don’t work! And let’s face it; they are not any fun either.

They both focus on what you cannot do and cannot have and do not account for surprises. Psychologically, both diets and budgets are ineffective and even potentially damaging to our wellbeing because the sense of restriction and deprivation create feelings of resentment which only destine the plan for failure. I think most of us know all too well the feeling of being motivated to start a diet just to fail a few days or weeks later.

So my suggestion, although it may seem counterintuitive, is to abandon the budget and the diet altogether. By focusing on the big picture and what you can have you will be more likely to be successful in changing your mentality and be better positioned for success.

It is really quite simple:  in case of financial health – spend less than you bring in; and in the case of physical health – the other way around – expand more than you take in. We all fully understand the theory but once when we try to live by those principles we realize that it may be much easier said than done.

Change the way you see saving and spending. Similar to healthy eating, you would be much more successful if you focus on the nutrition you get from your food rather than obsess with counting calories. The recipe is quite simple – eat whole, “clean” foods, cook more at home, eat less “empty” calories and move more. When it comes to your financial health, the principles are similar. Instead of feeling restricted with an unrealistic budget, develop a spending plan based on trends and be prepared and aware of “surprises” that will come along the way. Think about the purchases you make, the state of mind you are in when you make them. Are you an impulsive buyer? Do you have to have all the latest gadgets? A spending plan and a careful analysis of your historical spending will help you answer all those questions truthfully to yourself.

Budgeting and dieting share another similarity. Regardless of how devoted you are to your budget or your diet, life just happens. You will have that piece of scrumptious chocolate cake at the office birthday celebration party just when you have started your “No Sugar” diet. Or you will have to spend hundreds or even thousands on inevitable car repairs. This often creates the feeling of failure and makes us feel like we are not staying on target and not meeting our goals. That’s why an overly detailed budget will set you up for failure when a spending plan will outline the major categories in your spending: monthly bills, living expenses, saving for retirement, vacation, emergency fund etc.

Reexamine your priorities and consider why are you following the diet or budget anyways. Instead of being forced to focus on the restrictions that come with dieting and budgeting, focus on the long term goals and acknowledge progress along the way.

And last but not least, take advantage of all the tools available. There are so many options, from do-it-yourself programs like Mint.com , thru complementary advice from Mymoneyplan.net to customized, comprehensive spending plan you can work on with your advisor, like the ones from Your Family Bank. Whichever one you choose, focus on your goal of financial freedom. The budget is just an imperfect tool to get there and not the goal itself.

 

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