Our culture makes it easy to spend more money than we have. However, if you ignore the reality of your current financial situation and continue to spend more than you can afford, you’ll never achieve financial peace of mind. That’s why learning to live within (or below) your means is critical for your financial health and overall well-being.
Know How Much Money You Have Coming In and Going Out
The first step to living within (or below) your means is to get a clear picture of exactly how much money you have coming in and going out each month. It’s easy to get caught up in overspending when you don’t have a complete picture of your monthly spending pattern.
Expenses vs. Income
Most expenses come in two forms – fluctuating and fixed. Fixed expenses are monthly payments or bills that don’t change. This could be your car payment, rent, or mortgage. Fluctuating expenses are costs that regularly change such as gas, groceries, or utilities.
Using a spreadsheet or personal financial management tool (or even a pen and paper), list out all your monthly expenses and compare the numbers to your monthly income. Your monthly expenses should include everything you’re spending money on such as groceries, gas, clothes, gym memberships, streaming services, etc. If more money is being paid out than the income you bring in, you should further examine where you can cut back on spending to eliminate any unnecessary expenses.
Eliminating Unnecessary Spending
Sometimes determining which expenses to cut out can be difficult. However, an easy solution is identifying needs versus wants. Needs are necessary expenses such as food, clothing, housing, gas, and loan payments. Wants are the extras – buying coffee at your favorite coffee shop, going out to eat, or paying for unused memberships or subscriptions.
By taking a deeper dive into your expenses and reducing or eliminating unnecessary spending, you’ll be able to set aside extra money each month just by making a few minor changes. For example, making coffee or food at home instead of buying it will save you a few dollars each day –those dollars will add up over time!
Ways You Can Save and Reduce Expenses
In addition to making small changes to eliminate unnecessary expenses, there are other ways to save money on essential things. Let’s look at an example of a necessary fluctuating expense – groceries. This is something that you need to buy but the amount you spend changes each time you shop.
Here are some ways to save money on your grocery expenses:
- Meal Plan - Put together a list of meals for the week and buy only the ingredients needed for each meal. It’s okay to add a few extras, but having a plan before you go will help you stay organized and reduce extra spending.
- Generic Brands - Swap out name-brand items for generic goods. Generic items don’t spend as much on marketing, so the savings is passed along to you.
- Big Name Stores - When it comes to choosing a store to shop at, the options are endless. However, big-name stores such as Whole Foods carry products that tend to cost more than those of their more affordable counterparts like Aldi.
First Things First - Organize Your Numbers
After determining your income and expenses, the next step to living within (or below) your means is organizing the numbers. The good news is you’ve already done most of the work having mapped out your income and expenses, learned which expenses you can eliminate, and found ways to reduce spending.
Creating a Budget for All Your Expenses
While you need to curb your spending, it’s equally as important to still be able to save money and enjoy the things you love. That’s where budgeting helps! Experiencing financial peace doesn’t mean you have to deprive yourself. You just need to learn to do those fun things in moderation.
Creating a budget can sound overwhelming but it doesn’t have to be – especially since you’ve done most of the work already. You have a list of all your expenses and income. To create a budget, you simply need to set aside money for each financial expenditure from your paycheck. Dividing each expense by the frequency of your pay schedule curbs spending and ensures you have the funds to cover the bill or expense in full.
You can use this method with both fixed and fluctuating expenses.
- Fixed Expenses: For example, if your car payment is $255 dollars a month and you get paid weekly, you should set aside at least $56.25 each pay period and not spend it.
- Fluctuating Expenses: The best way to calculate this is to come up with an average dollar amount to set side. This turns a fluctuating expense into a fixed one, making your budget much easier to manage. For example, if you spend $400-$600 on groceries each month, use the higher figure and add a 5%-10% to that cost to give yourself a little buffer.
Creating a budget for your expenses helps control spending while ensuring you have enough money set aside to cover the payment or costs.
Pay Yourself First
Paying yourself first may sound counterintuitive but isn’t far-fetched. In your budget be sure to build in savings for yourself whether it be for a short-term or long-term goal, a rainy-day fund, or extra cash for investments You can start with as little as putting away $5 each pay period, and over time, you’ll see your savings grow!
As you pay off loans, continue putting that money aside as if you were still paying the loan each month. This will build a nest egg to pay for an unexpected expense or for something you want. You can also put the money in a high-yield savings account, money market account, or term share certificate (or CD).
What About Wants?
Getting to enjoy financial peace also means still getting to do the things you love. The key for this is simple – limit splurging and yes, budget the cost just like any other ordinary expense. Whether it’s a small or large purchase, doing it responsibly will not only help you achieve financial peace but overall harmony in life as well. After all, you’ve been putting in tons of work budgeting and making financial changes, and you deserve to treat yourself along the way!
Save, Live and Enjoy!
When it comes to finding ways to save, live, and enjoy life we’re in the business to help! At Peach State FCU we offer a variety of savings accounts to help your money grow, low-rate affordable loans for consolidating debt, as well financial literacy resources to grow your knowledge. Contact us today – we’d love to help you get started on your journey of achieving financial peace!
To learn more about budgeting or debt consolidation checkout our Dollar & Sense blog.