Have you ever found yourself living from paycheck to paycheck wondering where all fo your money went? Than as if all of a sudden you’re deep in debt. Guess what you’re spending more money than you’re making. This is commonly known as living beyond your means. I know that lunch with your buddies is far better than brown bagging it; as is driving that nice shiny new car but the reality is if you can’t afford it how are you paying for it?
What do I know about this subject? Well surprisingly a fair amount considering I have lived beyond my means in the past and its a trap that I fall back into from time to time. The scary thing is the more debt that you collect the easier it becomes to live beyond your means because you all of a sudden have a lot less money to spend on the frills and toys in life. To illustrate this point a little further I have been actively trying to stay on top of my spending for the last couple years. I haven’t made and extravagant purchases and when given the option to splurge spend I have avoided it. But I too am finding myself spending more than I make (unfortunately again).
Well the simply answer to living beyond your means and spending more than you make is: Spend Less than you make. Its a pretty simply solution to the overall problem even though each individual situation is different the net result is the same. If you are spending more than you make then you simply need to spend less money. There are a few things I have done in the past to help me get my spending under control:
- Figure out what you’re spending your money on.
- Cut back on the unnecessary spending
- Review and cut back some more
- Test it out
Step 1 – Figure out what you’re spending your money on.
This one is pretty elementary in my opinion because if you don’t know where your money is going how could you possibly start spending less than you make. For example if you are spending $50 a day eating out for lunch but only make $200 a week then you’ve got a serious problem. The example is extreme but it shows that if you are not concious of your activities you might not realize you’re spending more than you make.
To figure out how much I am spending I like to collect my recipts and tabulate everything. Once I have about a months worth of information I can start seeing my weekly and daily patterns. Whatever works for you is fine but be meticulous about this. Then compare it to how much money you’re making if you’re spending more than you’re making then you’ve got a problem.
Step 2 – Cut back on the unnecessary spending
Now that you have this glorious list of your expenses you need to remove items from it. That daily lunch with Fred for $50 can probably go. If you’ve never done this exercise before start with the items that irritate you, you know the ones where you are left wondering why did you spend that money. A few examples of these are: expensive daily lunches, going out drinking with the boys, CDs, DVDs, and unfortunately I can keep going.
Step 3 – Review and cut back some more
Now that you’ve removed some of the items that you really don’t need to be spending your money on, look at what your expenses would be. Are you still likely to spend more than you’re making? If it looks like you’re going to spend less than you make you can skip this step. If you’re still spending more than you make you need to go back to the list and chop out some more. Be ruthless and really cut back on the things you don’t need. I am spending more than I make and a couple of the items that I spend money on that I could cut out and will probably is smoking and drinking alcohol. I enjoy one and want to quit the other but this is a money pit for me.
Keep at this list until you spend less than you make. If you’re having difficulties ask someone for help; swallow your pride and just get some help. Have a friend review your list, or your wife or a parent. Don’t pick someone who will berate you for your spending just someone to help you reduce it.
Step 4 – Test it out
The final step, putting your new budget to the test. You have to cut back on the spending that you were intending to cut back on – this is probably the hardest part of the whole process. This post isn’t about the psychology of spending your money just some of my experiences about spending less and living within your own means. Remember the beginning where answered the problem of spending more than you make by spending less? This is where you do it. You have to actually stop spending your and your banks money.
Once you’ve tried it out for a week or two you should start getting a sense of what does and doesn’t work. Adjust as necessary – remember not every week will be the same and the reality is that shit happens. If you blow a tire on the highway you’re going to have to replace it; there isn’t anything you can do about that. Don’t get hung up on the things you can’t control.
Now that I’ve given you my long winded version of living within your means its time for me to start applying my own rules again. My short term goal will be to spend no more than I am making right now and hopefully less. You can still live paycheck to paycheck without getting ahead but that’s a different topic at least you won’t be digging yourself further into debt.