A huge resolution, but an achievable one. Living within one’s income is a crucial step to achieving long-term financial stability- it means you stay out of debt and start saving money towards your goals. While savings is obviously an imperative if we want to achieve our goals in the long-term, the necessary first step is creating some space between what comes in and what goes out with our finances. Here’s how.
The Ins And Outs
What is your income? You’d be amazed how frequently people don’t know- they might now how much they earn per hour or per year, but the final amount after tax isn’t something they can lay their hands on. If you’re going to make 2012 the year when you start moving on from the student-style paycheck to paycheck living, then you need to be in the know about what you earn and how much you spend.
While budgeting is the major tool to living within our incomes, it’s also worthwhile looking at your income and whether it’s time to ask for a raise or think about creative ways to increase the inflow as well as the outgoings.
It’s not sexy. It’s not new. But it does work. For my compadres out there who, like me, live with the mantra “I don’t know where the money goes’, this is the year we’re going to find out. Write down everything you spend. Tally it at the end of the day. Use a highlighter and mark off the spending that was unnecessary. You’ll, in all likelihood, be surprised at how much money you’re spending on a daily basis. Just that realisation alone is likely to save you money.
After a month, you’ll be able to better revise your budget to reflect exactly how your finances are made-up and ways in which they can be improved.
Living within your means does not have to mean draconian cuts to all your styles of living. Often it’s just a case of prioritising. What activities are really important to you, and what things could you cut without much pain? Are there ways to do things more cheaply- having friends over for dinner instead of heading out, replacing cafe brunch with picnics, using the train instead of the car to get to work.
When’s the last time you looked at your utility bill, or thought about the ways in which you used electricity or gas. Despite all my best efforts, my laziness does tend to get the upperhand every couple of months so it’s worthwhile thinking about how much I keep the lights on, or run the hot water.
Living within your income is going to feel amazing once you’ve started. For possibly the first time in your life, you won’t have to worry about eating only two-minute noodles until Wednesday. You’ll start to see bits of extra money, and at that point (whether it’s two months in or 2013) have to start thinking about where you’re going to put the money.
The most important thing is to not be living at a deficit, or slowly slipping into debt patterns, but once that’s been achieved, you’ll be able to get into the wide world of saving, investing and achieving wondrous things with your money.