Living Within Your Means
“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” -Wilkins Micawber (“David Copperfield”)
The living costs keep rising, but for many of us, wages and salaries just don’t seem to keep up – which means that living within our means is more important than ever.
In this sense “means” refers to money – so, not living within means is spending more money than you make. Although an easy and common pattern to fall into, such a lifestyle can quickly become unsustainable and lead to debt and financial struggles. Financial strain caused by overspending can affect not just our wallets, but also relationships, career and even personal well-being.
It’s important to understand that living within means doesn’t necessarily refer to a frugal lifestyle or being a “cheapskate” – all it implies is that you spend less than you earn, preferably with leaving some room for an unexpected event. If you feel that you have already overcommitted, it’s important to find ways to cut spending and/or increase your income.
The very first thing you can do is to get to know your means better: analyse your current regular income and fixed expenses per each pay period. We know that budgets are sometimes boring, but creating one is a crucial step on the way to living within means and eventually becoming financially independent. One thing to remember is that most of us usually have sufficient income to cover our fixed expenses, like rent and bills. It’s the discretionary expenses that so often get out of control, so our next step is to try and come up with ways to cut spending.
First, distinguish between needs and wants by going through the list of the expenses you made in the first step and tick off the variable and discretionary expenses. Carefully analyse them by asking yourself whether it’s something you definitely need, or just want? Every time you make a purchase, ask the same question and give yourself a day to decide if you REALLY need to purchase it. More often than not, you will change your mind and refrain from buying it.
Something we have blogged about before is the importance of avoiding keeping up with the Joneses: you may be able to purchase items (which otherwise would be out of your reach) to impress other people for a short period of time, but you will pay for it later – and most probably, more.
Don’t buy items you can’t pay for in cash or with a debit card, especially if you know you have little self-control when it comes to spending. Sure, it’s not always easy or immediately gratifying, but you will still get the items you need (note, we said “need”, not “want”) – but without having to go in debt. Save up and pay cash: this can help you become more accountable for spending.