Know what your means are: It is difficult to live within your means if you don’t know what your means are. Make sure you know exactly what is coming in and what is going out every month. If your salary is $100,000 a year, that doesn’t mean you get to spend $100,000 a year. After taxes, health insurance, dental, 401(k) contributions, etc. – you may only take home about $50,000-$60,000 (depending on where you live, what your deductions are, etc.). Know what your net income is and know what your bills are. Some are the basically the same every month, like rent, mortgage, cell phone, utilities, etc. and some may only come up once or twice a year, like auto or life insurance renewals. After your bills are paid, figure out what your variable discretionary expenses are – food, clothing, entertainment, and everything else you spend money on.
- Assume the Joneses are broke: Stop with the “keeping up with the Joneses” nonsense! Assume that the Joneses are leveraged up to their eyeballs, living paycheck to paycheck, and headed for bankruptcy. If you are making financial decisions based on what other families are doing – you are setting yourself up to fail. Don’t buy a bigger house or lease a nice car just because your friends are doing it, make decisions based on YOUR family’s goals, objectives, needs, and resources. Work with a Financial Planner to help you make these decisions.
- Hide your savings from yourself: It is much easier to save if you never have the money in your hands in the first place. Saving in your 401(k) is a great example of this. Your employer deducts your contributions directly from your paycheck so you never have control over those dollars. Do the same with your other savings needs. Have a percentage or specific amount of each paycheck deposited directly into your savings account instead of your checking. I have found it best to use an online savings firm like Ally Bank, that way I don’t see the funds when I login to view my checking account balance. Every time you get a bonus or raise, allocate a little bit more to savings, that way your take home pay still increases and so does your savings.
- Get the household on the same page: Cash management is a family affair. It is okay to nominate one family member to be the “financial manager” of the household, but ALL members of the family must be onboard with the spending plan (especially anyone who carries a credit or debit card).
- Never pay retail and buy used where you can: I woke up this morning with 179 new emails in my Gmail inbox. 78 of them contained coupons for retail and online stores. Many retail stores issue weekly (sometimes daily) coupons through email. If you want to buy something at one of those stores, wait for the coupon. This has the added benefit of giving you some time to think about whether or not you really need the item. Search coupon websites like www. retailmenot.com (also an app) by typing in the name of the store for active in-store and online coupons that are currently available. You can find almost anything on Craig’s List these days. If you are in the market for a bedroom set, high chair, lawn mower, washer and dryer, etc. – check Craig’s list first. Many people get rid of nice, new(ish) stuff all the time because they don’t want to move it or found something they like more.
- Build a Cushion: Have you ever heard the phrase, “If you don’t have an umbrella, it will rain”? Well, if you don’t have an emergency fund, you will have an emergency spending need. This is a common place where people get tripped up on their cash flow because they have no “cushion”. They basically live paycheck to paycheck and there is no extra pot of money (i.e. emergency fund or savings) for when the roof starts leaking, they blow out a transmission, break a window, have an expensive health issue, lose their job, etc. You should also build a cushion for the “non-emergencies” that you want to pay for – summer camp, soccer league, Christmas, college, weddings, cars. In the words of Dave Ramsey, “Christmas is not an emergency; it comes on the same day every year”. Plan for these expenses in advance so you don’t find yourself in a pickle when it’s time to pay for them.