by D. Victor

Created on: April 08, 2009

Living within your means is just living a lifestyle that you can sustain for years and still accumulate wealth over time. After all, you can only save and invest when you have some funds from your income left to save. Living within your means helps you to save towards future benefits and needs. If you spend as much as you earn, you are guaranteed to live paycheque-to-paycheque. Thankfully, there are several ways to prevent that.

1) Eliminate and avoid bad debt

Being in significant debt- especially the type that does not increase your asset value- prevents you from living within your means. You have to continue to pay for something(s) that you couldn't comfortably afford. Getting out of bad debt is necessary to start afresh.

2) Change your attitude

Living beyond your means arises from a materialistic approach to life generally. You want too much and you want it now! That approach is clearly not sustainable. Where any resource is scarce (including money), there is a blatant need to prioritise and sacrifice. Adopting this philosophy, deferring gratification and not coveting your neighbour's goods is necessary if you are to fight the urge to live a lifestyle that you cannot comfortably sustain.

3) Pay yourself first

Suppose you receive a net income of $5000.00 per month. If you pay yourself first, you might stash away $1000.00 per month. Your mind will be conditioned to accept that you only have $4000.00 per month as disposable income. When you pay your bills, you'd have less money to waste. This is essentially treating savings as another expense. Investing a portion of your income is a great way to reduce your liquidity while increasing your asset value.

4) Focus on 'debit' instead of credit

The 'credit' concept has given us the impression that we can afford more than we really could. Using credit only when necessary and convenient is key to living within your means. Because you can extend credit by manipulating the repayment period, an unaffordable car, for example, suddenly becomes more affordable. The result is that you continually buy more than you should since it doesn't appear to dent your pocket in the short run.

5) Create and stick to a budget

Budgeting is a critical aspect of financial planning. The power of a budget is that it shows you what you must do so that you can better monitor your spending and saving. Budgeting also allows you to exercise restraint once you commit to it. You will think of all your financial decisions in terms of the map that you set out

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