You’ve probably heard this saying more times than you can count, “live within your means.” What exactly does that mean, and how can you apply this to your financial life?
1. Spend by category
When creating your budget, determine how much of your income is going toward each category i.e. housing, transportation, etc. Try to stay within the recommended percentages. Here is Dave Ramsey’s recommendation for category spending:
Category Percentage of Overall Spending
Debt Payments 5-10%
Charitable Giving 5-15%
Misc. Personal 2-7%
2. Make calculations
Before making a financial decision, use calculations to determine if it is a smart purchase. For example, many people claim they are buying a new vehicle to save on gas money. Calculate the new car payment plus the estimated cost of gas. If the combined total is not lower than your current payment plus gas, it is not a good financial decision (this is not factoring in your environmental concerns, and if those are important to you, you’ll have to weigh that in).
3. Say “no”
Being financially responsible may mean saying “no” to friends and family. If they decide to go out for lunch, dinner, movies, etc., and it is not in your budget, you’ll need to pass. You could suggest alternatives like hanging out at your house or look for free entertainment in your community. After all, being friends shouldn’t be about how much money you can spend together, right?
4. Be content
Easier said than done, but being content is an important aspect of being financially fit and happy with life in general. If you are struggling financially, determine whether items are needs or wants before making a purchase. Make a wish list of items you’d like once you are more financially secure. You’ll probably be surprised that by the time you can afford them, you won’t want them anymore.
5. Stop using credit cards
Having credit card debt is the opposite of “living within your means.” Credit cards are sometimes necessary, and if used properly and paid off within a reasonable time, they are fine. However, if you are relying on them to buy your “wants” like mentioned above, it’s time to stop using them and start paying them off.