It is a popular proverb to cut and stitch your coat according to the material available. Or else the coat will be unfit to wear or the cloth will become wasted, not able to make a wearable attire.
This is also true for your finances. If you spend more than your income allows, you’re likely to fall into trouble. You probably would have to face financial problems, hardships that comes with it and maybe, mental agony.
Credit cards, loans, savings, and even emergency funds allows you to buy more things than your income would ordinarily allow. Unfortunately, that kind of lifestyle isn’t sustainable and, at some point, reckless spending will likely catch up. Learning to live within your means will help you avoid financial ruin and find the peace that comes with financial freedom.
Below are tips that can help you live within your means:
- Know How Much You Make:
If you want to live within your means, you have to know what your means are, but simply knowing your annual salary or hourly rate may not be enough to help you live within your means. You need to know the net income that appears on your paychecks—the amount you actually have to spend. You also need to know how often you get paid so you can better match the timing of your income with your bills. If most of your bills are paid monthly, you’ll need to know how much you get paid every month. You can however multiply weekly paychecks by four and bi-weekly paychecks by two to get your monthly pay.
- Spend Less Money Than You Bring In:
Once you know how much you make, you can focus on reducing your spending to fit your income. If you don’t have one already, you can create a budget to plan your expenses and use it to keep your spending on track. If you’ve already tried budgeting and it didn’t work, try it again. Often you just need to make some minor changes to your budget to get it to be effective.
If you want to keep the process simple, you can try a method called “backward budgeting.” Write down your income, then start subtracting each expense you pay each month. If you get a negative number, it means you’re spending more than your income and may need to cut back.
- Don’t Try to Keep Up With the Joneses or the Hiltons:
Resist the pressure to have the same material things as the people around you or, worse, the people on television. You may be able to use credit cards and loans to fake wealth for a short period of time, but you’ll pay for it later—and you’ll end up paying more since interest will most likely be added to your balance each month.
- Save Up for Purchases Instead of Putting Them on Credit:
People often use credit cards or loans for large purchases they can’t entirely afford. Instead of paying for these purchases on credit, you can put aside some money each month until you’ve saved up enough to buy it outright. If you can’t afford to save up for the purchase, then maybe you can’t afford to buy it just yet.
- Build an Emergency Fund:
Having savings that’s dedicated to emergencies will keep you from resorting to loans whenever you have a financial emergency. You can use your budget to figure out what you can afford to save each month, then set up an automatic transfer to make it easier to reach your saving goals.
If you’re already accustomed to over spending, getting your budget back on track may sound overwhelming, but these simple steps will help you make progress towards your goal of spending within your means. From there, you can begin saving for your future instead of worrying about how to pay the bills.
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