To get ahead financially the statement “live within your income” is one of most critical fundamental steps you can take on board. I cannot stress enough how important it is to get your finances in control and to have you living within the amount of money you earn.
I know it is easy to think that you don’t live beyond your means, but often you can be doing this without even realising it. Some questions to ask yourself to establish whether or not you do “live within your income” are:
- Do you pay cash for your purchases?
- Are your debts going upward instead of downward?
- Is your home loan increasing instead of decreasing?
- Do you have more credit cards than you did a couple of years ago?
- Do you have large amounts of debt owing for personal purchases such as cars, boats, renovations?
- Are you behind with some of your bills?
- Do you struggle to afford your bills when they come in?
- Are you always running out of money before your next pay day?
- Do you owe money to your family / friends / work colleagues?
- Do you have a lot of ‘interest free’ loans for purchases such a whitegoods, furniture, household items
If you answered yes to any of these questions, then it appears that you might be living beyond your means or could soon be heading that way if you aren’t careful.
The money you earn can only go so far. No matter how much you earn this is what you have to start to learn to live on. Be happy with your salary and rather than spending your time and energy yearning to earn that bit extra, concentrate your energies on working solutions to manage your money efficiently so you do live on what you earn.
The answer to any money problem isn’t going out and earning more money. If you have bad money habits, no matter how much you earn you will still find a way of spending more as you will just lift your level of lifestyle to absorb the extra money being received in each week. Get used to your salary and start to manage your money at this level. If you are then fortunate to get a pay rise, the smart thing to do with the extra money is to put that money aside for savings.
Some clues to start living within your income:
1. Do up a budget
Work out exactly how much money you have coming in to your household and how much money you are required to spend for fixed bills and commitments. This will give you some indication of how much money you have over for discretionary spending. If you find you don’t have any money over, then you need to look at ways to either increase your income or reduce your expenses. Budgeting is as simple as that.
2. Stick to a budget :
After you have written your budget, you must work out a plan to stick to your budget. There is no point just writing down a whole lot of figures on paper or plugging them into a spreadsheet if you don’t do anything with them. Use different accounts / money jars / envelopes to cover different spending purposes and start to manage your money accordingly. Put money aside so you have sufficient funds to pay for your upcoming bills and aren’t having to live from pay to pay or borrow off friends / family.
3. Say no to borrowing money :
To stop living beyond your means one of the most critical steps is to start saying no to debt no matter how attractive the purchase looks or how easy it is to get finance. The spiral of debt generally works in a downward direction. You can get pulled further and further into the core as the masses of debt around you grow and grow. Once in this spiral, it is very hard to get out.
Debt is something that can take over our lives and start controlling us if we aren’t careful of what we do and if we aren’t disciplined enough to say no to ourselves every now and then. If you can’t afford the item now without borrowing money, how do you think you can afford it with interest and loan charges loaded on top? If you can’t afford it, you have to start to say ‘no’.
4. Ignore interest free marketing campaigns :
Another measure you can adopt is to not be tempted by smart advertising campaigns such as pay nothing for 36 months. You still have to pay the item back at some stage and all you are doing is delaying the pain.
5. Leave the credit card at home :
Credit cards are a trap. They can entice you to go on spending sprees without really realising how much you are spending. It isn’t until you get the monthly statement that you get that rude shock and say gee “how can I have spent that much?”. By that time it is too late. If you want to go shopping set yourself a spending limit that suits your budget and available cash funds.
6. Take regular notice of your financial position :
Taking an interest of your financial position and noticing if your accounts are going upward or downwards is also a key to living within your income. Many times people don’t know their situation as they don’t look at it. I have had many clients over the years come to me and it isn’t until I point out to them that their home loans (generally set up as lines of credit) are going upward instead of downwards that they become aware of their situation. Many also think they are paying off their credit cards but don’t realise that they are spending more per month than they are paying off so the debt is actually going upwards instead of downwards. Take notice of your credit card balances, loan balances and records of your savings. Keep an eye on these on a regular basis.
7. Be careful how you justify borrowing money :
It is easy to say I need a new this or a new that and as I don’t have the money I will go out and get a personal loan for that item. This can be an easier solution to sticking it out for several months and saving the money to pay cash, especially if we are talking about the bigger ticket items such as cars, boats, home renovations, household appliances etc. However many people don’t realise the total cost they will incur on the item after they have included the payment of interest and bank fees on the loan over the next 5-7 years. Plus, you need to consider depreciation on the item and how little it will be worth by the time you have eventually paid the loan off. If you can stick it out and pay cash for something then you are going to be much better off.
Also, it can be easier to say yes when considering buying something when the deal can be done and dusted in less than 30 mins if the store provides you with instant finance at your finger tips. If you know you have to save hard for several months before buying something, you might make the decision to look for cheaper and alternative measures or you might decide that you don’t really need the item after all.