This post is from Jerry Coffey at Repaid.org. Enjoy!
Living within the confines of your income is the best way to keep yourself out of debt, or at least hold your debt to a manageable level. Now that I have written that down, everyone will magically be living within their means in the morning, right? Maybe in cloud cuckoo land. Here are a few tips that may help you find a way to live within your income and begin repaying some of your debt.
Where Does It All Go?
In order to live within your income, you have to know how much you make and what all of your expenses are. A good place to start is to know what all of your fixed expenses are. Fixed expenses are items that you cannot change immediately. Little nagging expenditures like rent/mortgage, car payments, etc. Subtract that amount from your income and you will know how much you have available to commit to your variable and discretionary expenses or pay down debt.
Become a Tracker
Not of wild game, but of your expenditures. This is the first step in forming an effective budget. We all have areas where we spend money them forget we spent it. This is usually an area that gets out of control and throws us off our budget or puts us in a situation where we may not have all of the cash for a fixed expense when the due date comes around. Once you have tracked your cash outlay for three or four months, you are ready to start forming a solid budget. There are dozens of online tools and spreadsheets available to help you, and I’ve gone over my personal low-tech process for tracking expenses here on Repaid.org.
Wants vs. Needs
One of the quickest ways to get into overwhelming debt is to confuse wants and needs. In our consumer driven society it is often difficult to separate the two. When you have an item in hand, ask yourself if you really need it. If you cannot readily answer the question–if it is not a quick and simple yes–put it back and go home. Think it over for a day, or even 72 hours. If you still think you need it, go back to the store. In this way you take your emotions out of the equation–a big part of how people end up in debt.
Pay with George
The best way to avoid debt is to buy everything possible with a stack of George Washingtons, or a few of his buddies Hamilton and Franklin. Adopting a cash-only lifestyle can save you tens of thousands of dollars over your lifetime. Look at a television for example. Cash price is $800. After sales tax it is around $864, depending on where you live. Now, put that on your credit card and carry a balance for just one year and the price goes up to around $1010, assuming that you only make the minimum monthly payments!
Save Where Possible
You have direct control over many of your discretionary expenses and a modicum of control over fixed expenses. Little things like changing the thermostat by two degrees, shopping around for all of your insurance needs, and buying a less expensive car can save you a hundred dollars or more per month. Other areas that are easy to cutback in are your grocery bill, furniture, electronics, and clothing. A simple list has been proven to save a person at least $25 a week at the grocery. Buying secondhand furniture and electronics can save $50 or more per transaction. Just buying last generation electronics can save you a ton. I never buy any clothing that isn’t on sale. My children have learned to look for the clearance rack first when we shop.
Never Go Without
This last tip is essential, you cannot deprive yourself. If you feel as if your budget is preventing you from living your life in an enjoyable way, you will stop following it. Your budget has to include some sort of reward or entertainment provision. You may even be able to save money while entertaining yourself. If you like to go out to eat, why not have friends over for a cookout instead? If they bring a dish, you get to save money compared to a restaurant and hang out with your friends. No one is deprived, including your wallet.
Have you got some other tips for living painlessly within your means? Let us know!
Jerry Coffey successfully paid down more than $10,000 in credit card debt through sound money management and the adoption of a frugal lifestyle. You can read more of his thoughts, insights, and ramblings over at Repaid.org.