A New Year, A New You: Learn to Live Within Your Means

living-within-your-means

Living Within Your Means

A New Year, a New You.  Have you resolved to get your finances under control?  I am sure you have.   As chief financial officer of your family, you’re in a great position to make this the year you become financially savvy and create a foundation of wealth for your family.  Even if you haven’t been clobbered over the head by the bad economy, you’re probably feeling a bit guilty about the state of your finances.  Maybe you felt like you spent too much on the holidays, or that your grocery bills are out of control, or that you have something big – Like college, looming, and no idea how to pay for it.  Or perhaps you look at your credit card bills each month and wonder where it all goes.  Well, you’re not alone.  While the HotMama is not a financial planner or an expert on the stock market, there is one piece of advice that she can share – and that doesn’t require an MBA.   So the one, simple financial tip is:  “Live Within Your Means” .

Many of us probably feel that making more money is the key to becoming wealthy and solving all our money problems.  And while a high income does help you become wealthy, it’s not the answer. Lottery winners, sports stars and movie stars go broke all the time.  Why?  Because they spend more than they earn.  Whether you make a million dollars a year or forty thousand a year, you have to learn to live within your means. Once you get this down, you can focus on making more money – knowing that you won’t blow it all – or that it will get sucked into paying off your credit cards.

So here is the HotMama Guide to Living Within Your Means for 2011 – Part I

First of all, what’s the definition of living with you means.  It simple means you don’t spend more money than you make.  And this is your take home pay, not gross.  So if your family brings home $1200 a month, this means you don’t willfully go out and spend $1500 a month, using credit cards and loans.

So first off, really determine what you make – from all sources – your paychecks, any extra cash you get from selling on eBay or odd jobs.

Secondly, find out all of your fixed costs – like rent, mortgage, electricity, loan payments, car payments, insurance etc – these are the things that are fixed and don’t change.

Then figure out your other unfixed but “necessary costs” – like groceries, gas, cable, heat, phone etc.  In some cases, you may need to estimate how much you spend each month.

Then put in a number for the incidentals – these are the things you spend money that aren’t necessary – dinner out, movies, books, entertainment, personal care.

If the total of all your expenses is more than your income, then you’re in trouble, especially since we haven’t even talked about saving yet.  If you’re expenses are less than you’re income – that’s great – but you can probably do better – and put more money into savings.

Now some financial experts suggest you create a budget, but most people hate that word.  So let’s call it a spending plan. This is a happy plan for how you’re going to spend all that hard earned money.  First of all, you need to look at your expenses and decide what you can cut.  Most of us can’t cut our housing costs without moving, so you should look in other areas.  Things like cable, eating out, shopping, cell phones.  You may want to consider cutting out some things entirely – for instance do you really need a cell phone or complete cable services (you can always get a prepaid phone for emergencies and watch shows on the Internet, or rent videos from the library for the kids).

Be ruthless.  Try to trim electric and heating bills by setting your thermostat lower and turning off appliances and lights when you leave the room.  Cut out manis and pedis for awhile and do them at home.  Plan your meals for the week and shop with a list to avoid overbuying at the grocery store.  You get the idea.

And forget about keeping up with the Joneses – they might have all the coolest gadgets, but either they’re making a lot more money than you are, or they are up to their eyeballs in debt – and probably full of stress and anxiety.

You can’t always make more money overnight, but you can get a handle on your finances almost instantly – and a financially fit family is a happy, calm and productive family – imagine no more fights about money, only discussions about the best way to spend it for you and your family.

So once you have gotten your spending plan down to meet your income, you may have left over money  – if not, go back and try again.  What should you do with your money?  Pay off debt and save.  If you have credit card debt, start paying it off.  You can start with the one with the lowest balance and pay that off – you’ll feel a sense of accomplishment that will keep you going.

You should also stop using your credit card – use cash, check or you debit card – put away the credit cards in a hard to reach place.  Living within your means you don’t use credit to add a couple of hundred or thousand bucks to your spending plan each month.  You will want to pay off your debt and if you do use credit cards, you will want to be one of those people that don’t carry a balance.

If you want or need something big – like a new bedroom set, a vacation, etc, then you should save for it – every month, but some money aside for this expense – and then go shopping – not before.

And don’t forget – your spending plan isn’t about austerity – at least not over the long term.  A spending plan should make you happy and allow your family to spend money in a smart way that also lets you be happy.  So if a monthly manicure is essential to you being a happy, HotMama, then by all means, include it in your spending plan – even if you have to give up something else that’s not as “important.”

Tell us your favorite tip for saving money, budgeting or being financially smart below:

Money can’t buy happiness, but it can buy your family some peace and mind!  Check out The HotMama’s Way to Wealth – The One Simple Thing You Can Do to Make Your Family Rich…