Americans have a love affair with credit cards. According to the latest Federal Reserve figures, we collectively have $853 billion in credit card debt.
Our nation loves to shop, but sometimes that consumerism leads to debt and a poor financial situation.
If you need help managing money, here are 10 tips that’ll help you learn how to live within your means.
Know your income and expenses
The first thing you need to know is what’s coming in and what’s going out.
Make a list of any and all income you have from your job, side work, pension or anywhere else. Then make a list of every bill you have, from rent to car payment. (Don’t forget bills that may not arrive monthly, like car insurance.) Using a budgeting app can help you keep track of all your expenses and your income.
These are your fixed expenses – the ones you have limited control over.
The difference between your income and fixed expenses is what’s left for the expenses you can control: your variable and discretionary expenses.
Most of us have sufficient income to cover our fixed expenses. After all, we wouldn’t have taken on obligations we couldn’t pay. It’s the variable and discretionary expenses that so often get out of control.
Track your expenses
A spending plan or budget is the single best way to ensure you live within your means.
A spending plan is exactly what the name implies: It lays out what you plan to spend. To keep tabs on your progress, or lack thereof, you’ll need to track your money as you spend it.
This used to involve the laborious process of writing down everything you spent, dividing the expenditures into categories, adding them up, and comparing those totals with your plan.
These days online budgeting services make the process easy.
If you want to know how to live within your means and reach your goals, you have to track where your money’s going. It’s the only way to nip problems in the bud.
Separate wants and needs
When it comes to shopping, knowing the difference between a want and a need will help keep you out of debt.
Before you make a purchase, ask yourself if you really need it. If you don’t, wait before you buy it. Try using the 48-hour rule.
If you see something you want to buy but don’t think you absolutely need, wait 48 hours before buying it. You might find that, more often than not, you change your mind.
Don’t fall victim to the keeping up with the Joneses mentality. Sure, your friends or neighbors might drive nicer cars, have the newest technology, or take expensive vacations, but that doesn’t mean you have to do the same.
Think of it this way: Your neighbor might have taken a loan out for the Mercedes, put the new flat-screen on his credit card, and taken out a personal loan to pay for a vacation.
Sometimes living within your means might not be as glamorous, but you will be much better off for it long term.
Buy when you have the cash
It isn’t always easy or immediately gratifying, but adopting an only-if-you-have-the-cash lifestyle can save you from falling into a debt trap.
For example, say that you’re about to move out of your roommate’s place and into your own apartment, and you don’t have your own TV. At first, you might plan to pay for one with your credit card — until you do the math.
If you don’t have the cash to pay off your card immediately, you might start racking up interest payments. Don’t fall prey to credit card debt.
Instead, save up for a few months. If you have a laptop, try watching your shows on that instead. After a few months of saving, buy your TV in cash, or put it on your card and immediately pay it off that month.
If you can’t afford to buy something now, don’t reflexively pull out the plastic. Instead, save up be sure that you can afford it in cash — it’s a huge part of being financially independent.
Keep an emergency fund
Life is unpredictable. Your car might break down, you could get sick, your bike could get stolen, and you might find yourself flying across the country to visit family.
Don’t fall into debt because you haven’t built up an emergency fund.
A good general principle to follow is keeping three to six months’ worth of expenses saved up. That way, when something goes wrong, you won’t have to reach for your credit card or take out a loan to pay for it.
Save money wherever possible
Saving money will help you stop overextending yourself financially. Try these tips to get started:
- Never walk into the grocery store unprepared. Before you shop, be sure to pay attention to which items are on sale, or which items you can buy in bulk to save (but won’t go bad). Also be sure to use a shopping list — it’s all too easy to accidentally buy frivolous stuff. Stick to your list and save.
- Track your hobby spending. Decide exactly how much a month you want to spend on your hobbies, like concerts or skiing, and stick to that budget.
- Bring lunch to work. If there are good restaurants near work, you’ll be tempted to buy lunch every day. Skip the pricey meals and try bringing lunch from home. It’ll add up.
- Buy secondhand. You can find incredible deals at garage sales or thrift shops.
- Open a high yield savings account. There are plenty of banks that offer around 2% APY on savings accounts. Check these out and make sure you’re making regular contributions once you open one.
Cut down on expenses
If you’re still struggling to live within your means, take a hard look at your expenses. There is probably something you can cut out or at least cut down on. For example:
- Gym memberships.
- Hair and nail salons.
- Cable TV.
- Cell phone bills.
- Shopping trips.
Go through your bills and cancel any service you don’t use frequently. For the stuff you do use, call the provider and see if you can get a better deal, or at least cut down. Maybe you only need 10 gigs of data a month rather than unlimited.
Boost your income
Of course an easy way to improve your financial situation is to boost your income. The most gratifying way is to make more at your current job by getting a raise. It’s probably the simplest way to ease money stress.
If that’s not in the cards and you routinely find yourself struggling to make ends meet, it might be time to look for a better-paying job.
Of course, there are many other ways to increase your income, from selling your stuff to side jobs to turning a hobby into a business. Where there’s a will, there’s often a way.
Do it yourself
One easy way to save money is, instead of always hiring a professional to solve problems, learning to do it yourself, or DIY.
There are plenty of things with which you can learn to DIY. Perhaps there’s a piece of vintage furniture that you want to refurbish. Maybe you’ll learn to change your own oil, fix your own bike tires, or even cut your own hair. You’ll find that you can save a huge amount of money by doing these things yourself because you won’t have to pay for labor costs.
It’s easier than ever to learn new skills. You’ll find plenty of valuable resources online, from how-to videos, to blogs, to forums. Spend some time researching whatever it is you want to do, and try to reach out to online experts if you need advice.
Don’t deprive yourself
When you hear terms like “living within your means,” especially when combined with words like “budget,” it’s natural to think about deprivation.
You might think there’s no difference between “budget” and “diet.” They’re both about deprivation, right?
Wrong. A diet is deprivation: Cottage cheese isn’t anything close to ice cream.
Living within your means, on the other hand, doesn’t have to be about deprivation.
Improving your spending habits at the grocery store doesn’t negatively impact your life. Nor does having a drink at home with friends instead of paying $8 each at a bar.
In short, you can live within your means and still enjoy life.
The trick? Substituting imagination for money. Think about what you really enjoy — then find a way to get it for less.
Find contentment in your lifestyle
It’s one thing to know how to live within your means, but you can also be happy with them.
Most people wish they had a more luxurious lifestyle: they wish they had more money, they wish for more expensive vacations, they wish they could buy more expensive things. This “desire for more” is exacerbated by social media, where everyone shares snippets of their supposedly glamorous lives.
First, it’s important to remember that most people only use social media as a highlight reel. They only post about things that paint their lives out to be exciting, happy, and luxurious. But that’s not the reality. If people posted on social media about all aspects of their lives, we’d have lots more “unhappy” posts about financial struggles, monotonous jobs, and feelings of inadequacy. Those are just some of the realities of life that fall on everyone from time to time.
The best thing you can do is learn how to unplug from social media. When you’re not comparing your daily life to everyone else’s highlight reel, you’ll be able to recognize all the great things about your life that are easy to take for granted. Be grateful for the simple things, like having a shelter over your head or having food on the table, and recognize that you don’t always need more material things to be happy. Sometimes, having a down-to-earth attitude can be the biggest budget improvement you can make!