I am often asked what the #1 thing you can do to improve your finances. After thinking about it, the first thing that comes to mind is to live within your means. Not doing so is the root cause of much of the financial stress and heartache we go through. It can be really really hard to live within your means, but that doesn't negate the need for it. So to start off a new year I want to talk about how we can all do this better this year.
What does living within your means actually mean? Obviously, it means not spending more than you earn, but I want to take it a step further to include living on less than you earn. The goal shouldn't just be to live on the cusp of your income because at the end of the month, you'd have nothing to show for it. A good rule of thumb is to live on 80% or less of your income. This allows you to give 10% and save 10%. Some of you might be thinking right about now, "How am I supposed to do that? I can barely make it as it is." Chances are if this is the case, then you have been living on the edge or above your income for some time.
So here are some things you can start doing this month if you're in that boat.
1~Get organized. Read this for more specifics of getting organized. Financially speaking, it's a great place to start because a little organization goes a long way.
2~ Create a Budget. If you've never had a budget or let it slip in recent months, then do one today. Start with your income. No matter how much or little you make, the principles are the same. It needs to be month specific and realistic. Cover your four walls first (read this for details). Then debt payments, and/or savings & giving goals. Be sure to include non-monthly expenses because they can wreck your best laid plans. Remember there are only two sides of the equation- Income and Outgo. If something comes up, make adjustments.
3~Clean House. This might be literal if you're coming up short and need to sell some stuff or are looking for a part time job. Most likely there will be some categories you need to thin out to bridge the gap. This may include drastic cuts like selling a car or house that you're struggling to pay for. At the very least there will be little things that add up quickly, like buying a drink at the gas station or daily lunches. Maybe it even means trimming utilities and grocery bills by lowering energy usage and better menu planning to avoid eating out and impulse purchases. No matter the category, short term sacrifice is always worth long term gains.
4~Learn to just say no (to yourself and your kids). Children can be one of the biggest reasons for getting off track financially. Part of being a good parent is teaching your children that the world does not revolve around their wants. Even if you did have loads of extra money, do you really want to raise those kind of kids? Likewise, adults can behave like children by "needing" things too. Be realistic and remember that family needs and goals come first.
No matter where you are in your financial journey living within your means should be one of your top priorities.
