Friday, February 10, 2012

Living Within Your Means

By Frugal Sally

Living Within Your Means = Don't spend what you don't have! If you can't pay for it then you can't afford it. Period!!

Let's start with a budget. Yes, the dreaded "B" word. You need to have a budget (ON PAPER) before the month begins. You need to tell your money what to do. Give every dollar a name. If you don't tell your money where to go, you will wonder where it went. If you want to bl...ow some money than put a blow catagory on your budget....but every dollar needs to be told what to do. Don't expect the budget to work the first month, maybe a little the second month, and maybe by the 3rd month it will fall into place. Don't give up. Write down everything you spend money on and go higher on the food catagory (because everyone seems to underestimate food for the first few months). is a FREE budgeting site that can help you set up your budget. It is super easy and can be adjusted whenever you need to do that. It can be a real awakening as to how you spend your money and give you a clue as to how to plug some of the holes in your wallet.

The envelope system is a sure fire way of living within your means. It is a great budgeting tool and it WORKS!! Watch Dave Ramsey explain it and try it yourself. You will be so surprised how easy it is and how much money you will save!!

Yes, I quote Dave Ramsey a lot, but then again he is the one I was taught by.  It works!  All my life I have read finance books and books on money.  I literally have shelves full of them at home.  I knew there had to be a way that made more sense.  This does.  Living within your means is a wonderful feeling and a real stress reliever.

This step is so important. It can make or break your attempts at getting out of debt. After your budget (your writen budget) and before anything else. Before you start aiming at the credit debt or any other debt, you need an emergency fund. Just a "starter" or "mini" emergency fund of $1000. This is murphy repellent. Do whatever it takes to build that $1000. fund.... Sell something, make something, take in some work, have a yard sale, babysit.
The reason for the fund is simple. If you have no emergency fund and something happens (your car breaks down, the washer breaks, the roof leaks) you will end up using your charge cards. We are trying to live within our means. Charging on a credit card is living above your means. The emergency fund could save you from charging. It's your cushion between you and murphy (bad stuff). If you have to use your emergency (also known as a rainy day fund) fund than just pay minimums on your bills again until you rebuild it.
It is the difference between making it and not making it!!

Again, this means living with what we have and what we make. It means not having to borrow and finance. If you make $40k a year than the goal is to live on that OR LESS! Yes, it can be done! Yes, it is hard sometimes. Yes, it is worth it!!

After you get that "mini" emergency fund started we will concentrate on paying off your debts. Dave Ramsey teaches to pay y...our lowest bill off first. This has two reasons behind it. One, it will free up that much money quicker. Two, it is a behavioral thing. A pat on the back and a "yes, we can do this" cheer for yourself. When you pay that small bill off, take the money you normally would have paid on that and pay it on the next smallest bill.
Focus all you have on that smallest bill. Put the same intensity towards it as you did setting up the emergency fund.
Don't say you can't find the money! If your child was deathly ill and you couldn't borrow the money or you didn't have it already, and they would die without the cure (and it just so happens to cost what your bills add up to), I bet you would find a way to make that money!! This is life and death folks, this is important!! Sorry to be so grim on that and use such a drastic example, but it's to show you it's all about priorities....make this a priority!!

It's about wanting what you have instead of having what you want. It's about living a frugal life to so you can survive well with what you make. Stretching the dollars to go further. Use coupons, shop the sales at the grocery store. Buy used instead of new. Recycle, upcycle, reclaim and reuse, wear it out, make it do. It's about not being a "slave to the lender"....
When you are debt free the world opens up for you. You can start saving for your kids college and your retirement. You can take paid for vacations and not have to worry about paying for it months or even years after you get home. I know people who are still paying for Christmas 2010 and then have 2011 on top of that!!
Think about it, how much money would you have to live on if you had NO bills. No credit card payments. No car payments. No student loans. You can do it!

Once you have snowballed your debt and it's gone, you can go back to your "mini" emergency fund and fully fund it - 3 to 6 months of expenses. Put it someplace safe such as an on-line bank which earns more interest than a regular bank. Then you are a little more safe against the rain storms that can pop up in life. It will give you more freedom to do things like rais...e your deductibles on your car and homeowners insurance (because you will have the deductible if something happens). It will be your saving grace if you are temporarily out of work. It is peace and security.

Another thing I want to bring up. Don't forget to treat yourself every once in a while. Put a little fun money into your budget. Just a little, not much, especially when you are still working the snowball. It can be a larger amount after all the bills are paid. About once a month or every other month, go out for an inexpensive dinner or a movie and enjoy it (and you really will because then it is super special). If you don't do this once in a while, you will really get bitter about the whole "getting out of debt" thing. It's a long journey, and it's hard work, so give yourself a reward every now and then (like after each bill is paid off and you check it off the list).

After the emergency fund is totally funded then the real fun begins. Investing and paying off the house (can you imagine not having a mortgage?). College funds or retirement. The goal is to put at very least 15% in retirement savings. It can be done easily when you have no bills to pay....
I have been debt free for a few years now. We are working to pay the house off early so we won't have to worry about it in retirement. We don't worry like most people do about if they can make the mortgage or how are they going to feed the kids. We haven't really even noticed this recession we are having. We are even going to do something this year that I've been wanting to do for the last 5 years. We are taking our grand daughter to Disney this year and it's paid for. We have been saving for it and can't wait to see her face when she sees all the Princesses. It was a hard road, becoming debt free (I married a man with a good bit of debt). Trust me, I would rather walk into a store and buy my cleaning products instead of making them. I would have liked to buy store bought cookies, but I made them. He would like to eat lunch out, but he brown bagged it. Funny thing is, now we could buy those things, but we don't want to. I love my frugal life.

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