Living within your means in 2020 hasn’t been easy. Scores of people have faced unemployment, furloughs, reduced hours, and pay cuts. Reductions in income have forced many to re-evaluate their spending and savings habits. They’ve had to reconsider how much they’re able to put into their retirement plans and college funds. People are carefully studying their finances like they never have before.
These financial realities have led many individuals and families to adjust their lifestyles to live within their means. For some, this is the first time they’ve put away their credit cards and corralled their spending. For others, it’s a return to the days of living on a lower income level.
Living with your means takes thought and planning. You need to make a concerted effort and take specific steps to get your financial house in order. Here are five practical tips for you to live within your means in 2020.
1. Know your numbers
How much income is there each month? What’s being spent on necessary living expenses? What’s being spent on discretionary expenses? How much money is going into your savings account each month?
Knowing these numbers is key to living within your means. If you’re spending indiscriminately, there’s a good chance you’re going to be spending more than you’re making. And this often means that plastic is being used to pay for expenses.
To know your numbers, use budgeting software or a simple spreadsheet. Make two columns to start with: “Income” and “Expenses. Getting your income numbers is easy; getting your expense numbers takes some work. You’ll have to review your checking and credit card statements to get expense figures. Once you have those, separate them into two columns: “Living Expenses” and “Other.”
Once you’ve done this, you’ll have a much clearer picture of where your money is going each month. This is a great first step in living within your means.
2. Define your “wants” vs. your “needs”
The media makes it very tempting to spend money we don’t have. We see new cars with all of the options, cruises to exotic places, people having fun wearing the latest fashions, luxurious homes beckoning us inside — the list goes on. Advertisers are very adept at appealing to our wants, not our needs.
It’s pretty easy to know your needs. Food, clothing, shelter, transportation, and strong insurance — from health and homeowners insurance to life and disability insurance — are all things we need to have, among others. We need to have them for the safety and well-being of ourselves and our families.
Wants are a different story. We want a “nicer” home. A sportier car. The latest fashions. But do we need them? If you’re going to live within your means, you need to answer hard questions honestly and make firm decisions on what you want and what you need. You may end up keeping your car for another couple of years and forgoing that home with the pool. But when the end of the month comes, you won’t have put yourself into unnecessary debt.
3. Don’t keep up with the Joneses
Social media is fun, but it can also awaken envy. Your connections aren’t going to show you their old car; they’re going to show you the shiny new one. They’re going to show you photos of the trip they took to a place you’ve always wanted to go to. And they’ll be doing this wearing clothes that make you want to head to Nordstrom.
One of the tenants of living within your means is don’t measure yourself by what others have. There’s always the possibility that they’ve accumulated debt they shouldn’t have to purchase things you wish you had.
A question you can ask yourself is, “Is it wise for me to spend money I shouldn’t on something I don’t really need to have or do?” Ask yourself this every time you feel envy rearing its ugly head. A rational answer can snap you back into reality and keep you living within your means.
4. Pay cash when you can
It’s tempting to pull out the plastic and painful to pull out the cash. Though you have a credit limit on your card, you still have the feeling that it’s okay to make that impulse buy that stores know how to tempt you with. When you’re paying cash, you’re much more likely to think twice before you get your wallet out.
You’ll be spending less when using cash, as well. In a study conducted by the Federal Reserve Bank of Boston, the average value of a cash transaction was $22, compared to $112 for the average non-cash transaction. This confirms the fact that you’ll give a purchase much more thought when you pay cash.
5. Try a side hustle
To live within your means, you likely have to spend less money or make more. Asking your boss for a raise won’t hurt. But, there are other ways to boost your income if you want to.
Consider picking up a side hustle. Can you turn a hobby into a part-time, money-making venture? Perhaps you make many of your own clothes. Could you make more and sell some of them to others?
Or, maybe photography is your unpaid passion. Some of those pictures you’ve taken could be posted on Instagram, and your connections may see how perfect they’d be for their family room. You won’t know unless you try.
eBay could be an untapped gold mine for you. Many people buy items at retail or consignment stores and resell them on eBay for big profits. A set of golf clubs you find at a garage sale for $25 could be shined up, put in a new bag, and sold for $250.
Adding a few hundred extra dollars per month can mean the difference between eating hamburgers all month versus having the occasional steak dinner, perhaps at your favorite restaurant.
Living within your means doesn’t have to be painful. With adequate planning and discipline, you can make the adjustments needed to make it a reality. Enjoy what you have and keep striving for the life you want. You can do this.
Jack Wolstenholm is the head of content at Breeze.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.