IFA Consultants
One of the most important aspects of
financial stability is to simply watch what you’re
spending and bare your income in mind. I know, easier
said than done, but in this article I will go into some
good habits to get into in order to live within your
means.
So what exactly does that mean, live
within your means? Well, very basically it means don’t
spend more than you make, but in fact, your main target
should be to be spending less than you bring in as net
spending money and the bigger the gap between expenditure
and income the better.
So for example, if you are on a salary
of say, £35,000, you should try to live like you
only earn £30,000. Now I understand that it isn’t
as simple as just spending less, I know a lot of people
would like to spend less, but have financial commitments
and have pretty much all of their income vanishing almost
straight away.
However, for the most part, a lot of
expenditure can be avoided as quite a lot of people
tend to feel like they need to spend money on leisure
activities like, an annual holiday, some drinks at the
weekend, new clothes after a few months of the same
wardrobe, but the fact is that in most people’s
lives there are outgoing payments that could be avoided,
or at least delayed.
Many people’s past decisions
and financial commitments will prevent them from being
able to considerably cut down their spend, but if they
had lived within or beneath their means from day one,
then they would be sitting on a nice saving by now and
have relative financial freedom.
If you are in one of these situations
then obviously the ideal solution would be some sort
of time machine, but unfortunately we are fresh out
of those so instead, try to use the vision of what your
life could be like now if you had lived beneath your
means as inspiration to work towards a new standard
of living in five or ten years time, even if it means
a lower living standard in the mean time.
One of the biggest errors you can make
is paying for things on a credit card, even if you calculate
that you will be able to pay it off next month, only
in the most desperate of circumstances should you ever
use a credit card because if you use one regularly,
this means your still ‘chasing zero’, i.e.
you will be in debt until next month when you pay it,
but you’ll have used that month’s money
to pay last month’s debt, and so you’ll
have to get yourself in some new debt this month. It
is always better to avoid paying for things on a credit
card because it can easily turn into a never ending
downward spiral.
Although not using your credit card
appears to be shrinking your bank balance faster, in
the long term it will be highly beneficial. If you endeavour
only to spend your own money and not the bank’s
by living as if you earn only 75% of what you really
do and really thinking about whether or not you NEED
absolutely everything you go to buy, then you will watch
your overall debt begin to fall away and you will be
on your way financial freedom.
Independent Financial Advice
There is a state of mind that is extremely
beneficial to have if you’re in debt or are just
generally looking to be in a better financial position,
and that is to live as if you make around 75% of the
money you actually make, or to live within/beneath your
means.
So what does living within your means
entail? In the most basic of terms it means don’t
spend more than you earn, but what you should be aiming
for is to spend less than what you bring in as household
spending money.
If for example you were on a salary
of £40,000, your aim should be to live as if you
only earn £35,000 if not less. Lot’s of
people will read this and feel that they can’t
simply stop spending that much money or they would have
done by now, but there is some advice for you to have.
Most people in financial difficulty
could in fact avoid a lot of their spending as many
people consider non-essential purchases to be essential.
Some examples of these are holidays, new clothes, weekend
drinks and generally replacing household items before
they absolutely need to be replaced, however the fact
is that most, if not all of these type of purchases
could be avoided or at the very least deferred for a
while, and if you really think about it, these type
of purchases could make up a large portion of your overall
spend.
The reason many people are suffering
from financial difficulties is that they have made decisions
in the past that now restrict them from making any real
savings, but if they had thought about living below
their means at the time, then by now they might have
had a nice slice of wealth to sit on.
Of course the best solution for this
problem is some manner of time travel device, but seeing
as we don’t have access to one of those, try to
use the vision of what your life could be like now if
you’d lived below your means from the beginning
as inspiration to not buy something that may have tempted
you before, for the prospect of a better life in years
to come, rather than struggle through and stay in basically
the same position.
Credit cards play a huge role in most
people’s financial problems, only in the most
dire circumstances should a credit card ever be used
to buy anything, even if you know you’ll be able
to pay it off next month. This is because if you get
into this habit, you end up ‘chasing zero’
i.e. you are always in debt and as soon as you pay it
off one month, you have no money left for that month
so you have to go back into the red. Paying for things
on a credit card can easily turn into a slippery slope
of debt and rising interest rates.
Not using your credit card can appear
to be having the wrong effect on your bank balance,
but in the long term it will benefit you greatly as
you won’t have a credit card bill to pay off.
You should try wherever you can to spend you own money
and not the banks by trying to live as if you only make
around 70-75% of your actual wage and really thoroughly
think about every single purchase you make and if you
don’t definitely 100% need to buy something, then
don’t and although your standard of living may
drop, if you think about the long term it will be well
worth it and eventually you will start to see your debts
fall away.
Independent Financial Advice Products
Living within your means is extremely
important if you want to clear your debts or just gain
greater financial stability. Of course it is a lot more
difficult than it sounds but there are a few good habits
to get into.
Living within your means in simple
terms means, spending less than what you bring in. Obviously
it will vary from person to person how much less than
your income you can spend, but the bigger the gap the
better.
So if you were earning £25,000
a year, you should be living like you only earn £20,000
if not less. Lot’s of people’s immediate
reaction to this is that they can’t simply stop
spending money that they need or they would have done
it by now, but you’d be surprised at what you
can cut down on if you really try.
A lot of people could cut out quite
a chunk of their expenditure as people tend to think
of certain leisure purchases as essential when in fact
they could go without them. This includes things like
holidays, new clothes if you’ve still got clothes
in your wardrobe, trips to the pub or buying replacement
household items when they don’t really need replacing.
A lot of these little expenditures could be avoided
or at least put off for a while.
The reason for lots of people’s
financial difficulty is the financial decisions and
commitments that they have made in the past. Regular
payments to your financial commitments can be a terrible
burden, but think about if they’d lived below
their means from the beginning, they would probably
now have some considerable savings and be financially
comfortable at least.
A good way of combating this situation
is to try and envision what your life would be like
if you had lived within or beneath your means from the
beginning and use that as inspiration to create new
shopping restrictions for yourself in order to create
that vision in the future.
Most people who are in financial trouble
will have a credit card and this simply adds to the
problem (if it didn’t create it in the first place.)
Credit cards are a way for banks to suck money out of
you and if you get into a habit of paying for things
on a credit card, then you could quickly find yourself
“chasing zero” i.e. paying off one month,
then having no money so you get in more debt that month,
then paying that off the next month, then having no
money again for that month and as interest rates rise
you will find yourself getting into more and more debt
if you follow this pattern, so unless there is absolutely
no alternative, credit cards should not be used.
Although not using a credit card can
be a scary concept in that you’ll have to take
your own money rather than the banks ‘safe’
money, but it will all end up coming from your pocket
anyway, and if you use the bank’s money, they
will only ask for more back and so effectively, everything
you buy with a credit card is more expensive. If you
live underneath your means i.e. get into the mindset
and completely live as if you only make around 75% of
what you really do and really strenuously think about
whether or not you absolutely need to buy the things
you go to buy. If you follow these steps then over time
you will start to feel the burden of debt easing off,
followed by a better life.
Independent Financial Advice |
