Living Within Your Means

#FinanceFriday

My mom used to always say “I’m not trying to keep up with the Joneses.” That was her way of saying she is going to “live within her means” and not try to get herself in debt or create a financial hardship just to impress people.

What does this mean exactly?

It means cutting back on expenses (especially those that are unnecessary) so you can have money left over each month.

Areas where you can cut back:

  • Dining Out/Fast Food
  • Cable/Entertainment
  • Any expense that isn’t a necessity

Benefits of living within your means:

  • Ability to generate a Savings
  • Covered for unexpected purchases/expenses
  • Less stress if an Emergency arises
  • Affordability for short-term and long-term savings

Here’s a way to accomplish this:

Create a list of your bills and expenses.

Literally write down everything you are financially responsible for.

The usual categories are:

50% of take home pay should include the things you NEED!

  • shelter
  • utilities
  • transportation
  • insurance (car and healthcare)
  • clothing
  • food

20% should go to Financial Priorities

  • short-term savings
  • long-term savings
  • debt payments
  • 401K
  • Roth IRA contributions.

30% goes to Lifestyle Choices. These aren’t a necessity but we choose to have them!

  • pets
  • vacations
  • cable
  • gym fees
  • hobbies
  • cellphones
  • eating out
  • entertainment

Of course what works for one person or family may not work for the next! Separate your expenses into categories that work for you. Your percentages may even vary. The above are only guidelines. The Goal is to:

  1. List your expenses to get a clear financial overview
  2. Evaluate your financial status
  3. Set clear, attainable financial goals
  4. Identify what steps you can take to achieve this
  5. Take Action
  6. Give yourself accountability

The average person does not know where their money is being spent. The first time I ever created a budget for my expenses was a MAJOR eye opener. It made me more conscious while spending. Now it just comes natural for me to create a monthly budget at the end of the month for the upcoming month. I also review the prior month to compare with the current month to track any changes or extra savings.

Next week I’ll be sharing how to create a budget!!!


Have any finance tips you may want to share? Shoot us an email at justlikeyouiaew@gmail.com

photo by: Tax Credits

I would love to hear your feedback!