You do realize that you have to live within your means because spending more than you earn is unsustainable. Yet you don’t seem to be able to get out of debt. It feels like you are trapped in the vicious circle of minimum payments, accumulating more debt, paying off some of your debt but then “having” to use credit again… and it starts all over again. Sounds familiar? You are not alone. The average household consumer credit card debt in the US is about $15,422. You do have a choice. You don’t have to try and fund a lifestyle you want but cannot truly afford.
Distinguish between wants and needs. Our instant gratification culture teaches us that we can have anything. And we can have it now. We are also wired to believe that if we really want something that must mean we need it. And credit cards are the enabler. So to avoid buying unnecessary items, always ask yourself if something is an absolute necessity or something that you think would be nice to have. Create a mental questionnaire that you go through every time you are about to make a purchase. And apply it to everything. With a little bit of practice, this decision process will eventually become second nature and you will be able to apply it in all kinds of situations. You may even discover that there are opportunities for limiting unnecessary expenses in areas that you did not even think about such as groceries for example.
Know yourself. Not only is your financial situation different than your neighbor’s or friend’s but so is your personality and your ability to “resist temptation”. In terms of spending that is. Even if it may be difficult to admit, you probably know if you are a spender and cannot really accomplish Step 1 above. If that is the case, purposely stay away from shopping temptation, or do not carry your credit cards with you, or come up with whatever works for you to keep your mind occupied and keep you away from trouble.
Set limits on spending and track your expenses. If you don’t already track your expenses, you should make a priority to do so. It is imperative you have clarity on how much you spend every month on groceries, clothing, paying bills, entertainment etc. Having just a rough idea is not enough. Sometimes what you think you spend in certain categories and what you actually do may be what causes you to live above your means and “supplement” your income with credit. Once you know how much you spend, set a limit on expenses.
Have an emergency fund. Very often we use credit not for wants but because we have to cover urgent and unexpected expenses. Those are inevitable. Life happens and even if you are very disciplined about sticking to your spending plan, there will be surprises. Therefore, all experts agree that everyone should have at least 3-6 months of living expenses in an emergency fund. Keep in mind, this is the minimum. It is however absolutely mandatory to have an emergency fund if you don’t want to be forced to rely on credit.
Don’t get caught up in consumerism. Stuff is just stuff. One of the most important ways to ensure you live within your means is to focus on living simply, being happy with less. Remember that the best things in life are free. Reevaluate how you spend your free time. Are you indulging in material possessions to keep up with the Joneses? Take a moment to answer all these questions truthfully. Refocus and find simple and meaningful pleasures that don’t get you in debt. Then you will know you have learned to live within your means.
What do you live within your means? Please share in the comments section below what works and doesn’t work for you and your family.