How to Live Within Your Means – Part 1 of 3

Living within your means means more than just balancing your budget. It means being aware of the difference between what you need and what you want. As Mark Twain once said, “Comparison is the death of joy,” and if anything, you need to learn to find a way of spending that works for you — not for your neighbors or best friends. Living within your means requires you to be mindful of how you spend your money, but if you do it correctly, you won’t actually be depriving yourself of the things you really need to be happy.

Create a list of essentials

This includes things such as groceries, utilities, and clothing. Essentials are things you absolutely cannot do without. You cannot survive without groceries, for example, while you can survive without spending $1000 on clothing each month (even if you don’t feel that way!).

Estimate your income

This will probably work best if you use a monthly income. If you are on salary, this is usually pretty easy. However, if you are part-time, unemployed, or a dependent, this may be a bit more difficult. Most likely, your best route is to take your monthly income or budget for the last three months and take an average. While this may not be spot on, it will likely be close enough for you to rely on to make ends meet.

  • When you have to estimate your income, remember to remove the amount that you would reserve for taxes. Depending on how much you make, it may look like you have a bit more money than you actually do before you pay your dues to Uncle Sam.

Record all of your expenditures

To do this, record what you bought, how much you spent, and where you bought your goods/services from. This does not have to be extremely detailed. “$100 on groceries at Walmart” will suffice. Once again, this will probably be best from a monthly standpoint. See how much you’ve spent on all of your essential items and non-essential items as well.

  • If this is hard to track because you pay for a lot of things in cash (and good for you if you do!) or just can’t keep your bills straight, then you can start tracking your expenditures for the current or next month instead.

Compare your income to your expenditures

See how you fare. If you are significantly in the green, then you’re doing fine! However, if your income and expenditures are equal, then you’re not saving any money, and if your expenditures are much higher than your income, then you have a problem. Of course, if you’re a student and currently don’t have an income, then this will naturally happen, but you can still think about how you can spend less money in the future.

Evaluate your expenditures

See where your money is going! Start by categorizing your purchases. Make “Essentials” one category. The rest of the categories will be unique to your preferences. For example, one category might be “Eating Out”. Once you have done this, add up all the purchases in that category and create a category total.

Cut the fat

More than likely, you’ll notice at least one category other than “Essentials” that seems to be eating a large portion of your income. Take a look at that category. See what you can cut out. For example, if you are seeing nine or ten trips to Starbucks under “Eating Out”, try cutting this down to three or four. That could be a quick $25 right there. Continue to cut at the non-necessities until your income is higher than your expenditures.

Boost your income if it’s necessary

You may see that your spending has so far outrun your earnings that you’ll have to do far more than just cut your expenses if you want to make ends meet. You may need to take on extra hours at work, ask for a raise, or look for a higher paying or part-time job to raise your income. If there are other members in your household, see if another income earner can do the same, or if you have teenager or older children, see if they can take on a part-time job.

Set saving goals

Create attainable goals within a reasonable time frame. Maybe your goal is to spend $200 a month. Maybe your goal is to save $120 a month for a trip to Paris at the end of the next year. The more specific and attainable your goal is, the more likely you will be to reach it. If your general goal is just to “spend less money,” that is too vague for you to really take initiative or to know if you’re getting close to reaching it.

Save for an emergency

If you really want to live within your means, then you can’t let one unexpected event, like a car accident or job loss, completely ruin your finances. You need to save some away for a rainy day, even if you’re only saving $100 a month. This money will add up, and you’ll feel much more safe and confident than if you’re spending your money down to the wire every month without having a penny to spare.

  • Even throwing your change in a “emergency jar” at the end of every day will help you mentally prepare to set some of your money aside for the unforeseeable.

Source: wikiHow under a Creative Commons license

Published by W. M. Brown

I am a retired U.S. expat living in Ecuador. I was a business owner for 32 years before retiring in 2012.

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