Spending within your means may sound like a simple rule to follow, but many Americans spend more than they save, which can result in debt. The good news is that it’s completely avoidable, and it’s reversible over time. With a little planning, tracking and adjusting your spending, you can live happily within your means.
For a stronger financial future, here are a few tactics to start living within your means and building better spending habits.
Create a budget.
Setting a budget simply means examining your income and expenditures in order to determine exactly how much money you have coming in and where you’re spending it. Once you've got a clear understanding of your current budget — what income you’re receiving and what expenses you’re responsible for – take a closer look and find places where you can spend less. Not sure where to begin? Get started with this Budgeting calculator.
Identify wants versus needs.
An effective way to streamline a budget is to identify your discretionary spending (wants) versus your essential spending (needs). Recognizing the difference between wants and needs can help you better understand what spending is necessary and what categories you could save in. The first step is to analyze your spending and cut back on nonessential purchases. It can make a significant difference in your annual budget by freeing up funds to be saved or used elsewhere. You may find you save hundreds of dollars a month by reducing entertainment costs or frivolous purchases. The idea isn’t to stop enjoying your life, but to understand costs and prioritize expenses for a healthier savings account.