When it comes to finances, there are many things – like inflation, market performance, and emergencies – that are outside of our control. However, there’s one area where every person holds power, regardless of their income: spending money.
Every day, we are influenced to buy all kinds of frivolous things through advertisements and social media that we think will make us prettier, happier, or more successful. But giving in to this pressure can lead to overspending that Brews financial trouble – especially in times of uncertainty.
The key to achieving a more balanced financial life is to live within your means. In this article, I’ve provided an explanation of this phrase and some basic tips to reduce unnecessary expenses so you can reach your short- and long-term financial goals.
Signs of Overspending
We all know people who drive nice cars, take frequent vacations, and own multiple homes. These expenses require a lot of money, so they must be able to afford this lifestyle, right? Not necessarily. Rather, this is a common sign of overspending. Many Americans are deep in debt to maintain their standard overliving, and in some cases, their social status. Without reining in their spending, these people could find themselves in a sticky financial situation if their income disappears for any reason.
Another sign someone may be living beyond their means is if they’re unable to pay for an unexpected expense due to the lack of an emergency fund or other savings. This often forces people to live paycheck to paycheck until they reevaluate their monthly budget, pay off their debt, and cut back on unnecessary expenses.
Living Within Your Means
When someone is living within their means, they are discerning the best way to use their income, whether it is earned from a job, investments, Social Security, or distributions from savings. These are their resources, or what they have available to live on.
Everyone has a different amount that is “within their means.” However, it’s easy for people of all levels of income to overspend on discretionary things like eating out, entertainment, convenience, vacations, big-ticket items, or gambling.
We all work hard for our money and should enjoy the fun things in life, but balance is key. We may have to choose not to buy something, or to buy something that costs less, depending on our resources. These can be difficult choices, especially if we feel pressure to keep up with other people’s impressions.
Sometimes living within our means requires us to make sacrifices. If you have a limited income, you may have to make more sacrifices than someone with a higher income, but everyone has to make choices in how they spend their money if they want to achieve financial stability.
How to Reduce Overspending
1. Review Your Budget Monthly
Check to see what you spend on the necessary things on average each month. What are you spending on discretionary things? Most banks allow you to categorize your spending, so this can be pretty easy to do. What expenses can you reduce?
2. Create an Emergency Fund
Make sure you’re adding money to your regular savings account, not just your retirement savings, every month. Build cash reserves to at least 3 – 6 months of your monthly budget as part of your emergency fund in case your income ends unexpectedly.
3. Save for “Big” ThingsSave for the big-ticket fun things you want(trips, toys, concerts, etc.) so you can pay cash for these instead of borrowing money.
4.Pause Before Clicking “Add to Cart”
If you think you want to buy something that costs more than a few hundred dollars, don’t buy it immediately. Wait a few weeks, or even months, to see if your desire for that item is still there. The impulse to buy something discretionary may fade if you wait, so you will have less buyer’s remorse if you give yourself time to consider the purchase.
Building new habits takes time and accountability. If you’re married, work on this together as a couple. If you’re single, gather a group of friends to encourage each other to spend more wisely and get in a healthier financial position.
Looking for guidance on how to better live within your means? Contact one of our financial advisors at TruStone Wealth Management and we’ll help you get back on track toward your goals!
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