With rising prices and ever increasing consumer demands, it becomes more challenging for many individuals to live below their means. Credit card bills, keeping up with the Joneses, and other unnecessary expenses are among some of the reasons it is exceedingly hard to stick to a budget. Some find themselves unable to spend less than the amount of money they are able to make each month. Here are a few suggestions to help you live below your means and improve your financial health.
Credit Cards
Using a credit card could be a step backwards. You can easily incur substantial charges for large purchases or late monthly payments. Also, credit card companies can decrease credit card limits or close credit cards without warning. This could spell bad news for individuals who use their credit cards to pay off their debts. In some cases, it is wise to even avoid using debit cards in order to live below your means. Removing all temptation to spend what you have saved might be the best thing you can do to help yourself stay on track.
However, there are some situations in which credit cards can help you pay down debt if you are disciplined. Cards with 0 percent APRs allow for 0 percent interest rate for six months to a year. This allows you get what you need without paying interest in addition to paying off more of the principle of your debt. Unfortunately, these cards are not always easily available. As long as you have cash to make payments on time, you can avoid the additional fees and penalties. Card holders can greatly benefit by paying down the balance on their card before the rate expires.
Deferred Payments to Stay Below Your Means
Deferred payments are another way to reduce your monthly expenses. Some stores offer payment plans for consumer goods. This way, you can pay in installments instead of needing the full amount up front. You can then invest the amount saved on the purchase in a high yield investment. However, you have to remain aware of the costs associated with late payments on your installment plan. Financing a purchase can also improve your credit score, and leave you extra cash on hand if you have other financial complications later on.
Tracking Your Living Expenses
Taking control of your finances and reviewing your budget help to manage debt and expenses. To give you an idea, no more than 50 percent of take home pay should be used for expenses. About 30 percent should be used for savings. Only 20 percent should be spent on extra expenses such as smartphones, entertainment, dining out, home services, and vacations.
Housing expenses should not account for more than 20 – 25 percent of your budget. Housing expenses may include mortgages, rent, taxes, maintenance, and utilities. Finding ways to reduce such expenses is easy when comparison shopping with other suppliers for goods and services. It might surprise you just how much you can save by spending a little more time reviewing your options.
Tracking your expenses can go a long way in building a sense of accountability as well. It reveals more about your spending habits, allowing you to make continuous changes and monitor yourself over time. A spreadsheet or budgeting app can also keep records of spending habits for future references. It can be used to plan for future spending activities.
Budget to Live Below Your Means
In order to live below your means, you need to know exactly how much you are earning and spending each month. This requires you to sit down and evaluate you monthly bills and create a budget you will be able to live with.
- Calculate your expenses. The first step is to make a list of all your monthly expenses. Begin with the most important bills that must be paid first like rent, mortgage, utilities, loan payments, food, and other basic necessities. Next, check your receipts and review all your other purchases.
- Evaluate your spending habits. After you take care of your primary expenses, prioritize the other monthly expenses you have. Ask yourself if you really need the latest gadgets or if you can skip a meal out and opt to cook at home instead. Find ways to cut your spending in small but meaningful ways.
- Maintain control and self-discipline. Although you have a plan, some find it difficult to stay the course. Stay focused on your long-term goals and motivate yourself to stick to your budget.
While it may seem daunting, it is entirely possible to reduce your monthly bills and live below your means. It may be uncomfortable in the beginning, but remind yourself of how a little sacrifice now will help you achieve your goals for the future.
Read More
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- New Year, New Bills: A Step by Step Guide for Effective Budgeting
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.