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24th Feb 2017 11:57am | By Editor
Living within your means. We’ve all been told we aren’t doing it by someone at some stage. It’s a term we associate with nagging parents and frugal people who are usually right, annoyingly. But what does living within your means actually mean?
In simple terms, it is not spending more than you earn each month. In theory, you need to be able to pay for all of your purchases without having to borrow. The long-term plan should be to save some money for your future and avoid being dependent on credit cards, loans or overdrafts.
To live on ‘cash’ means just your money and not the banks or family members. So your initial battle is going to be getting rid of any current debt or at least getting in control of it. Initially, attempting to live within your means isn’t going to be easy because the money you’ll be saving will just be going back into your debt until it’s under control.
Have a good old fashioned sit down with a calculator, a pencil and some paper and work out what’s going into your bank each month. You need to know how much comes in and on what date. Multiply weekly payments by four and bi-weekly payments by two to get your monthly pay. Make sure you include any rent you’re receiving and any other means that you’re earning an income from; it’s not just your salary. You could also use the Money Advice Service quick cash finder , which helps to plan your regular spending.
In a similar fashion, go through your bank statements and look at your direct debits that are going out. Bills can include anything from your mortgage; phone bills, electricity and also your TV license and Internet bills. If your bills are starting to run up to a larger total than your monthly income then you’re going to have to make some changes.
Form some sort of graph that includes food, nights out, children, pets, fuel, those sorts of categories and jot down under each expenditure how much you’re putting towards each category each month. Then take a good hard look at yourself and consider whether any of these figures are a bit high for your situation. Perhaps you could share lifts to work to save on fuel, buy unbranded food and start making your own lunch for work.
Make a plan and stick to it. Tell yourself that you are only allowed to spend £20 on nights out this month. To make sure you can’t go over the limit, only take £20 out in cash and leave your card at home. Likewise have a look at shopping in a different store if your food shopping has got out of hand; you may save money just by going elsewhere or changing your meal plans to basic vegetables and protein. A 100% certainty when it comes to living within your means is reducing the number of takeaways you have - they’re expensive and lazy, so get cooking!
If you can’t see light at the end of the tunnel because you’ve decided everything is a necessity you might need to consider trying to make a bit more money. If your job doesn’t show much progression it could be time to look elsewhere, perhaps where you're going to be offered more money. Otherwise you might have to take up an evening job or hold private tuition, rent out a spare room, get all your old clothes on an online selling website, and definitely look into how much you could save in bills by going on a comparison website as this could make a lot of difference.
According to exclusive research by the Money Advice Service for BBC One’s Right on the Money programme, one in eight of us struggle to make our wages stretch to the end of the month. A massive one fifth of people surveyed said they spend their money straight away on things like clothes, nights out and takeaways. This is a bit worrying, people don’t see a clear future for themselves so don’t try and save their money until later in the month when the struggle begins. The worst spenders are relying on credit cards, overdrafts or family members to help them for the rest of the month.
Instead of spending money on fun gadgets to play with this month, maybe you should download the free Money Advice Service Budget planner where you can list your newly worked out income and spending figures and the planner will work the rest out for you. It will tell you where you are overspending and see what you can afford without risking your essentials like rent and bills.
You could save loads of money just by changing your shopping habits. Have a look at the store you’re going to and decide whether you could drive somewhere else to save money i.e. Lidl instead of Sainsbury. Beware of special offers, ‘buy one, get one free’ or ‘two for one’ isn't always actually worth it if you're simply spending more money to buy groceries or items you don't actually need. As a general rule, if you aren’t going to use it, don’t buy it.
Definitely don’t impulse buy, you might really like those shoes on the day but if you forget about them by the following week then you’ve saved, congratulations! However, if you can’t stop thinking about something it usually means it’s a good investment and you’ll get a good use out of it, just be sensible and if you have a real problem with impulse buying restrict your time spent near retail sites.
So - you’re doing everything right but still ending up out of pocket? It could be because of the little expenditures mounting up that you don't really notice. Consider withdrawing the amount you’re allowing yourself to spend (after close calculations with your budget calculator) in cash for the week and not using your debit card at all. You’ll probably notice that adding a sandwich and some chewing gum to your fuel at the petrol station will actually make quite a lot of difference to the change you get back. Having to physically hand over cash instead of a card can help to manage money better.
As much as you want to live like a king when payday comes, it’s time to take your crown off and save to reign in the future. The trick is to be sensible; if you must sign up to a credit card, make sure it’s interest free for the first year and that you can make all your repayments in time.
If you want to socialise but have already used up your weekly budget, then why not hold an evening at home with mates and get them to bring their own wine and snacks? You'll no doubt have just as much fun but spend far, far less than a night out.
Just remember, it’s not the end of the world tightening the purse strings, as you’ll find your savings open you up to a world of experiences in the long run.
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