How to stop living beyond your means
Posted on Jan 2 2013 at 09:52:11 AM in Money
The facts are that:
1. 40% of Americans live beyond their means; 40% of Americans live on 110% of their annual income.
2. 50% of American households have accumulated less than $1,000 in “net financial assets", the value of money in the bank, stocks, bonds and other securities after subtracting loans, credit card debts, and other secured debt
3. A majority of Americans in households with incomes of $35,000 or less believed that they are more likely to accumulate a $500,000 nest egg by winning a lottery or sweepstakes (40%) than by patiently saving and investing of relatively modest sums (30%).
People spend 8 hours or more every day working to make money and so little time figuring out how to make sure that they stop living beyond their means or paycheck to paycheck.
If you want to stop living paycheck to paycheck, the first thing you need to do is create a detailed budget.
a. How much money do you make monthly?
If you are paid weekly $1,200 then your monthly income is
$1200 x 52 (weeks in a year) = $62,400 / 12 months = $5200 per month
b. – MAKE A VERY, VERY DETAILED BUDGET
What are your actual expenses? Take a look at how you are currently spending your money. By looking at your current spending habits you can identify areas where you need to modify spending. Look at credit card receipts, or better yet start tracking every single expense on a daily basis. Create a spreadsheet and write down every single expense every day.
c. You Need to Start Saving Money so you can stop living paycheck to paycheck or stop living beyond your means. So, you need to start looking at expenses that you can live without and create a budget, STICK TO IT and track your spending to make sure it stays within the guidelines you’ve established.
Savings Goal: 10% of income
Mortgage or Rent, Home Owners Association, Groceries, Dining Out, Coffee/Tea, Lunches (kids), Electric, Water/Sewer, DSL or Highspeed Internet, Telephone, Home Office Supplies, Car Payment, Car Insurance, Health Insurance, Medications, Cell Phone, Club or Membership Fees/Dues, Clothes, Shoes & Accessories, Toiletries, Subscriptions, Entertainment (movies, theater, amusement parks, etc.), Credit Card Payments, Loan Payments, Student Loans, Second/Third Mortgage Payment, Medical Bills, Day care, Children's Clothes, Sports, classes or club fees, School expenses (formals, pictures, uniforms, etc.), Babysitting, Property Taxes, Car Registration, Christmas Gifts, Home Repairs, Car Maintenance and Repairs.
Ideally, break these down into separate categories and start looking at ways to cut some of these (go online and compare insurance rates for your home or cars, for example).
Look at each of these expenses and figure out how to reduce or eliminate some of them.
d. – SAVE, SAVE & SAVE MORE
Create a habit of saving. Whatever method of savings works best for you, DO IT. Even if it a jar on the dresser you fill with money, a savings account, whatever. Take 10% of your earnings and pay yourself first, meaning save. This money will not only build a cushion for emergencies but will help you sleep better knowing you have a little stashed away should something come up unexpectedly.