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Americans have a love affair with credit cards. According to the latest Federal Reserve figures, we have $853 billion in credit card debt.
As a nation, we love to shop, but sometimes that consumerism leads to debt and monthly financial struggles.
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.
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. See ”How to Automatically Track Your Spending and Goals.”
If you want 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.
Before you make a purchase, ask yourself if you really need it. If you don’t, wait before you buy it. I use the 48-hour rule. If I see something I want to buy but don’t think I absolutely need, I’ll wait 48 hours before I buy it. More often than not, I change my mind.
Think of it this way: Your neighbor might have financed that Mercedes, put the new flat-screen on his credit card, and taken out a personal loan to pay for a vacation. You’re not a lemming; don’t follow the group off a cliff.
Once I realized that interest would radically raise the cost of the TV, I decided to wait. I watched TV on my laptop for a few months, saved up, and bought the TV I wanted outright. I didn’t miss out, and I didn’t pay extra.
If you can’t afford to buy something now, don’t pull out the plastic. Instead, save up and pay cash.
If you don’t have three to six months of expenses saved up, start saving now. When something goes wrong, and it will, you won’t have to reach for your credit card or take out a loan to pay for it.
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.
You have no right to complain about being underpaid if you’re not at least looking for better alternatives.
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 usually a way.
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. Spending less on insurance by raising your deductible 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.
Stacy Johnson contributed to this report.
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