The Secret to Living Within Your Means

It’s simple to tell when you’ve begun living outside of your means. It’s that feeling you have when the numbers just don’t add up. You owe more on your credit card than you have in the bank, or you’re unable to pay rent or other bills on time. It can start as a slow creep and suddenly snowball out of control, which is why it’s important to get a grip on your financial life early.

Here are steps you can take to be in control of your finances, no matter your stage in life.

Run your cash flow

Knowing your cash flow is a fancier way to say budget. The cash flow formula is simple:(income) – (bills, debts, savings goals) = what you have to spend each month

Understanding your cash flow makes it much easier to stay within your means. Consider setting a weekly money meeting with yourself to check your bank accounts and credit cards to ensure you’re not accidentally overspending or creating unmanageable credit card debt.

Identify financial freedom for yourself and set goals

Financial freedom is often touted as an achievement that allows you to walk away from a traditional 9-to-5 job and retire. That may be the high point, but there are plenty of other moments of financial freedom that you can achieve along the way. Paying for everything yourself (i.e., cell phone, insurance, rent, groceries, gas) without help from others is one of the first markers of financial freedom. The next level could mean affording a trip or a class you want to take. Basically, it’s having the ability to make a large purchase without it blowing your budget.

Figure out what financial freedom means to you and outline the different stages it takes to reach that goal. Celebrate your small achievements along the way, so you learn to appreciate how far you’ve come.

Start saving early and consistently

Saving your money is boring advice, but it’s a key part of living within your means and setting your future-self up for financial success. Once you know your cash flow and identify your financial goals, you can proactively strategize your savings routine. That’s best done by continuously examining your monthly savings and reverse engineering how much you save.  Starting a routine early greatly benefits your wealth over time and gives you some padding against unexpected expenses.

To hit your desired financial goals, it’s important to evaluate how much you’re stashing away compared to how much you could put away. After a few months of saving the same percentage of your income, ask yourself if you can increase that amount and still afford your other bills.

Prioritize your values

Another secret to living within your means is to define and prioritize what you value. It’s all too easy to let what other people think dictate how you spend. Take some time to be introspective. Decide what it is that excites you and where you’re okay trimming the budget. You don’t have to follow the spending habits of your friends and family if that doesn’t align with your values.

Spending your hard earned money on what you value makes it much easier to feel financially satisfied. Consider setting up a savings account for a few items or activities you value most. That way you’re not risking your financial stability when you decide to indulge.

Create your own frugal lifestyle

Frugality sometimes gets a bad reputation and can be synonymous with cheap. It’s not. Frugality is the act of being economical and resourceful with your money. Your brand of frugality doesn’t have to come from the same playbook as anyone else’s. Simply save in some areas, put your money toward what you value, and you’ll find yourself on track to successfully live within your means.

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Source : TaxAct Blog