Live Within Your Means

If you are like many people, you may find that you are spending more than you're saving and steadily going deeper into debt as a result. This is an easy and common pattern to fall into, and one that requires some planning and discipline to reverse.

The first step is to understand what you are spending your money on, then create a budget. As unpleasant as this may sound, creating a budget is nothing more than examining your income and expenditures in order to determine exactly how much money you have coming in and where you're spending that money.

Once you've got a clear understanding of your current budget, your challenge is to find places where you can spend less (or earn more) in order to achieve your financial goals. Here are some steps you can take toward that end:

1. Track, Trim And Target

Once you start tracking, you may be surprised to find you spend hundreds of dollars a month flexible expenses, on eating out. To begin with, create a spreadsheet to track your monthly sources of income and expenses. After 3 months, review the results. It may become obvious that you need to cut back in certain areas.

Some types of expenses are more easily trimmed than others. Cutting back is usually a better place to start than completely cutting out. Be realistic. It will help you to be better prepared for unexpected costs. Once you have gotten into the rhythm of living your life on a budget, you will notice all kinds of spin-off effects. In the short term, you won't feel as much stress when your bills arrive. In the long term, you may find yourself heading for a more secure financial future. It is important that you continue to track and update your spreadsheet – this needs to become a life long habit. It will help keep you on track through good times and bad.

Example of a spreadsheet that can be used to track your earnings and expenses:

The SMART Way to Trim Expenses

In finding ways to trim flexible expenses, it helps to have a goal to save toward each month. Setting such a goal needs to be SMART:

• SPECIFIC Smart goals are specific enough to suggest action. Example: Save enough to visit Disney World. Not just "save money."

• MEASURABLE You need to know when you achieved your goal or how close you are. Example: A trip to Disney World costs $2,000, and you have $800 saved.

• ATTAINABLE The steps toward reaching your goal need to be reasonable and possible. Example: I know I can save enough money each week to purchase that trip to Disney World.

• RELEVANT The goal needs to make sense. You don't want to work toward a goal that doesn't fit your need. Example: We would like to stay in one of the resort hotels.

• TIME-RELATED Set a definite target date. Example: I want to go to Disney World by next summer

2. Question Your Needs And Wants

What do you want? What do you really need? Your wants are basically the things you can do without — everything from that high-end tennis racquet to dinner out at a gourmet restaurant. Wants are purchases that, while they may make your life easier or more enjoyable, are not necessary to your well being. Your needs, on the other hand, are not quite so flexible. They are necessary financial obligations such as taxes, housing and food costs. Evaluate your current financial situation. Take a look at the big picture. Make two lists – one for needs and one for wants.

As you make the list, ask yourself:

• Why do I want it?

• How would things be different if I had it?

• What other things would change if I had it? (for better or worse)

• Which things are truly important to me?

3. Set Guidelines

We all have different budgets based on our needs and wants. But the Building a Budget chart on the next tab shows some guidelines on how much should go toward different expenses. You may need to make adjustments for a daily latte fix or visits to family, but remember to subtract amounts from other areas if you do. It is important to stay focused on what your goals are and continuously track your progress.