live below your means

11 Good Money Habits That Will Keep You Out of Debt

Mikey Rox — Tue, 24 Jan 2017 10:00:11 +0000

Staying on the straight and narrow, especially when it comes to your finances, can feel like a struggle. Recreational activities, impulse buys, monthly bills, and unexpected expenses lurk around every corner, and if you're not careful, you can slide into debt without really trying.

If you practice good money habits as a general life philosophy, however, you're giving yourself the best chance of staying in the black consistently — and perhaps even making those coveted savings gains. Here's how.

1. Create a Budget Based on Life Goals — Not Numbers

Every article you read about how to improve your personal finances includes creating and maintaining a budget. That's because actively keeping track of what's coming and going helps you manage your money more responsibly than simply throwing caution (and cash) to the wind. But your budget is only serving a single purpose when it's strictly rooted in numbers opposed to relating to your personal activity and short- and long-term goals — like an upcoming vacation or contributions to your retirement fund, for instance.

As such, instead of living your life around your budget, you'll find much more satisfaction in building your budget around your life. By planning ahead for expenses, even frivolous things, you can identify the areas where your budget is lacking and (hopefully) close those holes by either amending your plans to accommodate your cash flow or increasing your income to afford the things that make you happy.

I recommend the latter, of course — because you only live once.

2. Charge Only What You Can Afford to Pay Off Every Month

Let's get something straight here: Credit is not as dastardly an institution as you've been led to believe. Yes, there are credit cards with astronomical APRs. And, yes, there are credit cards with ridiculous late fees. But at the end of the day, you're responsible for reading the fine print (you know it's there!), and nobody is forcing your hand in accepting an offer.

Still, credit is attractive because it allows us the freedom to have more than we can afford. But whose problem is that when you can't pay the bill? All yours. Avoid this downward spiral by making your credit card payments top priority each cycle.

"Credit cards are not evil, but they can make a mess of your finances if used unwisely," says savings expert Kendal Perez. "Ultimately, you should only charge what you can afford to pay off every month. Using your credit card to pay bills is a smart strategy since you have to pay these expenses anyway, and using credit means accruing points, rewards, or travel miles to offset future expenses."

3. Look for Savings on Everything You Buy

I personally save many thousands of dollars every year by being a smart shopper, because there are few things I buy for which I don't have a coupon or discount. From dining out to going to the movies to the clothes I wear to the gas I put in my vehicle — everything comes with savings.

It's not hard to get into this habit, either. I save by using loyalty cards, clipping coupons, redeeming cash back deals, signing up for promotional emails, waiting for items I want to go on sale, shopping clearance sections, and buying secondhand, among a myriad of other strategies. It's like a game for me, and I hardly ever spend money on something for which there are no savings; I look for a cheaper alternative instead. It's a major reason why I always have enough money in the bank to cover my bills, plus add to savings while still doing the things I like to do every month.

4. Buy Groceries Based on What's on Sale and in Season

Groceries are one of the biggest spending categories for Americans, next to mortgages and insurance. Instead of buying what you're craving, buy groceries based on what's in season and what's on sale. (See also: The 5 Best Credit Cards for Groceries)

"This will require some meal planning, but you can craft similar meals based on what's on sale each week," explains Perez. "Use a tool like Flipp.com to easily compare grocery sales and deals between stores in your area, and consider looking for grocery coupons for items on your list through CouponSherpa.com."

Another trick I use to cut my grocery bill is to shop the clearance section. Most supermarkets have these sections with drastically reduced prices on damaged or about-to-expire food that's still perfectly good if you get to it in time. Ask your grocer where these items are located in your store.

5. Organize Your Bill Payments to Avoid Lateness

As soon as a bill arrives, I grab my checkbook (yep, I'm old school), write out the check, and prepare the envelope. On the back of the envelope I write the dollar amount that's inside as an at-a-glance reminder, and I organize the bill on my desk according to when it's due. Then I stagger the mailings — sending each payment out about five days before it's due — to ensure that I can reconcile all the bills with my bank account.

Consumer finance expert Kevin Gallegos offers more tips on how to avoid late payments.

"Open all mail — including bills — upon receipt, deposit all checks and cash immediately, and set up a system for payment that works for you and that you'll use consistently," he says. "This might be automatic online payments, a spreadsheet, a reminder on your cell phone, or a list on the refrigerator."

6. Map Out Your Long-Term Financial Goals

The only way you'll get ahead in your finances is if you know where you're going. Take a look at what's coming up in terms of required expenses and also think about some of the things you'd like to do with your money. Do you want to go back to school, on vacation, or purchase a new car or home? Set these milestones as goals and calculate what it'll take financially to reach them, then start saving in increments along an established timeline.

7. Review Your Finances on a Regular Basis

Reviewing your finances on a "regular basis" is a relative term, but I typically suggest once a month. There's value in doing it more often, however — like once to twice a week — according to personal finance expert Larry Jacobson.

"You need to set regular intervals to stay on the right path," he says. "That way, you can course correct, if necessary, before it's too late."

When reviewing your finances, be sure to cover all your bases. Browse your credit score for any errors, review bank and credit card statements for inconsistencies, and make sure all checks have posted. It's also a good idea to call your service providers once a year to inquire about better deals, like cheaper mobile phone or cable plans.

8. Treat Savings Like One of Your Monthly Bills

Instead of regarding contributions to your savings as a chore, start considering it a requirement, says Gallegos. Treat your savings deposits like a monthly bill; find that extra money somewhere in your budget (a reasonable amount that you can handle) and tuck it away as if you'll be penalized if you don't. You may have to make a sacrifice somewhere else, like in your "fun" fund, but, well, that's life.

9. Learn to Live Below Your Means

If you're one of those people who responds well to logic, here's a pro tip on staying debt free: Live below your means.

"Know exactly what you have to spend each month — and spend less," says Gallegos. "Living beneath your means goes further than living within your means. It means taking responsibility and choosing where your money goes instead of being influenced by whims, advertising, habits, or peer pressure."

If this is a tactic you'd like to try, you'll need to re-evaluate your budget entirely. Find items you can reduce or eliminate altogether to free up funds, like subscriptions and memberships that you aren't using to their full potential, cutting back on dining out, and reducing your monthly fuel bill by carpooling with a coworker or using public transportation more often.

10. Switch to a Cash-Only System

Here's another piece of practical advice that leads your wallet away from debt: Only pay for things in cash.

"You can't go into debt if you don't borrow," says Mike Sullivan, a personal finance consultant with Take Charge America, a nonprofit credit counseling and debt management agency.

I recognize, of course, that that's easier said than done, so Sullivan offers a couple more strategies for holding yourself cash-accountable.

"Save with direct deposit at out of town banks," he says. "You don't want your savings available on a whim; Internet banks are a good choice. And don't sign up for overdraft protection. That's agreeing in advance to spending more than you have and paying for the privilege."

11. Make More Money

One of my own personal money manifestos is to always have at least two sources of income. I'm self-employed, and I consider my media business my main source of income, but I supplement that with several side gigs, like renting out rooms in my homes on Airbnb, watching other people's pets through DogVacay, and driving for Lyft and Uber. That's three extra sources of income right there, but I'm always eager to find more ways to make money.

I feel personally satisfied when all my bills are paid on time, money is consistently going to my savings account, and I'm cash-positive enough to enjoy life the way I want to. If you can't seem to get ahead, use your resources and carve out time to make more money. You'll achieve your financial goals and alleviate the burden of debt faster, and that can only lead to good things.

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Frugal Factors: What Traits Do Most Savers Share?

Kentin Waits — Wed, 27 Mar 2013 10:36:33 +0000

As I get older, I find myself more and more inclined to spend time with those who share my views on frugality, simple living, and saving. It seems as my age increases, so does my resolve to be quite open about my frugal ways. I guess that’s either drawn like-minded folks toward me, or repelled others — perhaps it’s done a bit of both simultaneously. The more I think about it though, the clearer it becomes — frugal folks do share a set of traits, values, or ways of living that bind us together and help us recognize each other in unlikely places. (See also: 30 Signs You Were Raised by Frugal Parents)

After a bit of observation and introspection, I’ve compiled a list of frugal factors — primary traits that we frugal folks share. Now, it’s by no means a comprehensive list or the least bit scientific. Instead it’s a character study of what it means to live simply in an age when “more” is often synonymous with “better”. So, here goes; I think frugal folks usually...

1. Recognize the Golden Mean

If you’re watching your dimes and dollars, you tend to recognize more quickly the optimal amounts of nearly everything. Not too much and not too little, the golden is all about finding balance.

2. Buy for Quality, Durability, and Timelessness

Let’s face it — we’re human, and sometimes buying things is downright fun. But frugal buyers focus less on the transaction and more on the benefits of that transaction over time. We look for quality, we buy for durability and functionality, and tend to gravitate toward timeless looks that will never go out of style.

3. Make the Connection Between Time, Labor, and Things

Unless you’re spending lottery winnings (and congratulations, if you are), there’s an inseparable connection between time, labor, and things. The price of any item or service is directly related to labor and labor is directly related to time. More visceral than the idea of money, we know that things cost time.

4. Live Below Our Means

If things really do cost time, why spend all of it year in and year out? The frugal among us typically understand that living below our means helps us to save and ultimately helps preserve our future time and labor.

5. Understand the Real Cost of Ownership

Most things we purchase require an ongoing and indefinite cash outlay. Cars break down, high-def TVs inspire us to upgrade our cable service, printers need ink, suits need dry-cleaning — even our adopted pets need food and good care. Savers understand that the act of buying often means agreeing to pay for years to come, and we plan accordingly.

6. Distinguish Between Needs and Wants

For those who can differentiate between the things we need and the things we want, life is a whole lot simpler. It’s easier to prioritize, to control spending, to live within a budget, and to truly (madly, deeply) enjoy a splurge.

7. Embrace Satisfaction

We all live in a world that’s suspicious of satisfaction. If you don’t aspire to own a bigger house, buy a newer car, take more exotic vacations, install a spa bathroom, or build an outdoor kitchen, you’re viewed with a combination of pity and mistrust. But for those less driven by upgrades, the peace that comes from satisfaction can be priceless.

8. Understand the Difference Between Spending and Investment

Frugal folks often get painted with a broad brush; people think we penny-pinch and save no matter what. But, of course, that’s a false notion. More accurately, we understand the difference between spending money and making an investment. And we do our share of each — with awareness. Buying six pairs of new shoes is spending money; buying one versatile pair for work and everyday use is an investment. Taking a cab three times a week is spending money; buying a bike is an investment.

9. Avoid the Use of Credit

Credit is easy, tempting, and often habit-forming. Savers understand the pitfalls of compounding interest on unsecured consumer debt and we avoid it at all costs.

10. Know When to Seize an Amazing Deal

One of the most unsung skills of frugality is knowing how to spend. When an amazing deal presents itself, frugal folks recognize it immediately and know what to do. When spending now means saving later, we can whip out our wallets as fast as the next guy.

I’m sure there are more I’ve missed, but these qualities seem to form the foundation of frugal living. Each idea is learned personally, one at a time, often through trial and error. Also, at this risk of sounding sappy, each idea unites us in a sort of movement that’s rethinking consumerism, excess, and debt-as-a-lifestyle. So, take some to time recognize all your frugal neighbors out there, share some tips, some adventures, and maybe even a cup of coffee. You have a lot to talk about.

Do you see yourself in this list? Is there an important trait I’ve missed? What’s your journey been like as you’ve grown into your own frugality and what do you still struggle with?

This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Dreams You Won't Achieve Unless You Live Below Your Means

David Ning — Wed, 20 Jul 2011 10:36:09 +0000

Living below your means is probably a personal finance tip that you already know about. In fact, spending less than you earn has been talked about so often that it doesn't even feel like advice anymore — many people's reaction is, "Isn't this obvious?"

However, not everyone who knows what to do actually practices what they know. If you are one of those people, you probably won't be able to achieve the following dreams unless you start living within your means. (See also: Living Within Your Means Isn't Nasty)

Having More Time (and Working Less)

Spending less than you earn gives you the option to have more time to do things you actually want to do. You don't have to take a job with tons of overtime just because you need the money or a far away job that sucks out all your time because the daily commute is extremely long.

Retiring Early

If you still choose to work like everybody else who absolutely needs every penny of their paychecks, you can actually retire much earlier than conventional wisdom dictates. I know plenty of frugal people who retired in their 50s even though they never earned a high income. When you spend less, your need to accumulate a really high nest egg reduces too.

Finding a Job You Love

If you love what you do, you won't feel like you are working a day of your life. Yet, too many people work at jobs they hate because they need the income to keep coming in. Funny how most people actually can't stop themselves from buying even though the mortgages, car loans, and credit card bills are like chains that link their lives to everything they find miserable.

Getting Better Raises

Unless you've been living in a cave (or have so much money that you have your assistant carry your wallet and pay for everything), you know that prices of just about everything have gone up. Fortunately, not all is bad in regards to inflation. People who spend less than they earn are have an easier time adjusting to the new prices because even though their companies' raises might be smaller than the inflation rate of goods, these people are more likely to have the increases to their cost of living fully covered by their raises.

Here's an example. Let say you make $50,000 dollars and get a 2% inflation adjustment this year, giving you a $1,000 raise. If you only spend $20,000 a year, and a 2% increase on $50,000 is $1,000, it's like you have a 5% increase on what you can spend.

Buying When You Want To

Before you know it, living below your means will equate to having a small cash reserve of your own built up, giving you the power to buy the items that you want, when you want. And if you are like many people out there, the urge to buy immediately might actually dissipate because you know that you can make these purchases at anytime, even if there is a coupon that urges you to buy now. Furthermore, once you skip a few purchases, you will probably find that most of all those impulse buys are really just unnecessary to begin with, saving you even more money.

This article is from David Ning of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Shrinking Your Cash-Flow Period to Create a Better Budget

David Ning — Fri, 07 Jan 2011 13:00:09 +0000

Over lunch the other day, my friend Jessica told me she discovered a new idea to help her save more money on a daily basis. She has always been careless with her spending, so it was awesome to hear that she found a method that works for her. I'm paraphrasing, but this was her basic concept:

I used to try maintaining a positive cash flow on a monthly basis, but money is always tight at the end of the month. These days, I take my monthly take-home pay, deduct all my big expenses like rent, and then divide the remaining amount up by the number of days in the month to get what I call the "daily spend limit." Whenever I want to spend money, I just think of my daily spend limit and try never to go over that. I find that I can easily keep it under the limit most days and by the end of the month, I'm pretty much always ahead.

I'm so happy to hear that Jessica found a way to spend less than she earns, because spending within your means is probably the most important personal finance lesson you can ever learn. But why does this work?

1. The Math Makes Sense

Mathematically, you are essentially trying 30 times harder a month when you try to spend within a daily limit. For example, you might end up spending $1,197 a month if your monthly cash limit is $1,200, but if you spend $39 out of $40 every day, you will only spend $1,170 in 30 days.

2. It's Easier to Manage

Breaking up the large monthly budget into smaller, daily amounts is also easier to visualize and manage. When Jessica was trying to conform to a monthly limit, she usually spent more during the first half of the month and started cutting back during the second half when she got dangerously close to the limit. When she doesn't go way out of control at the beginning, she ends up pacing herself throughout the month.

3. It Helps Reduce Careless Spending

When she was working with a bigger monthly amount, each small purchase seemed negligible. However, once she deducts the fixed expenses from her income and then divides that number further into a daily limit, a popcorn at the theater seems like a much more wasteful purchase. If Jessica really wants something, she can buy it, of course, but she's more likely to realize that her life is just as great without eating that bag of popcorn. (It's probably unhealthy and bad for her anyway!)

What Jessica did with her budget is basically divide and conquer, breaking up major projects into smaller, more manageable tasks. This may not work for every person out there, and it certainly doesn't address large purchases. But if you are in a rut with your wasteful spending, why not give this a try?

This article is from David Ning of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What's Your Financial Philosophy? What It Means To Live Below Your Means

Silicon Valley Blogger — Wed, 04 Feb 2009 22:38:34 +0000

We all want to try to live below our means, but we all approach this goal from various directions. There are pretty much just three basic ways to do it: cut costs, increase your income or do a bit of both.

There are some terms that are bandied around that describe these strategies:

You can either be a frugalist -- someone who is generally thrifty and who strives to keep costs low. Your goal is to keep a lid on spending and to keep a careful watch on outgo.

Or you can be a capitalist -- someone who focuses on income generation and making money. You work on ways to raise your earnings and emphasize the income portion of your balance sheet.

Most people I know are a little of both, although I believe that people are predisposed towards a particular philosophy when it comes to trying to save money. There's a term coined to describe someone who takes the hybrid approach: it's called being a frugal capitalist. I'd certainly describe myself this way, although I admit that I do gravitate towards spending more of my waking moments pondering over wealth building strategies rather than deliberating what it is I can do to shrink my budget.

As we discuss these financial orientations, I thought to share with you some additional truisms that I've personally found interesting.

Do You Live Below Your Means or Earn More Than You Spend?

When you live below your means, I've taken it to mean as "spending less than you earn". This implies that you're trying to cap your spending and assuming a ceiling on your earnings. This perspective begins with establishing how much we earn then working to make our spending fit those parameters.

To spend less than we earn, we concentrate on strategies that help us to stop overspending, to get rid of debt and to curb our shopping habits. We fuss over our budget, wrestle with personal budget software and become adept bargain hunters. We basically spend our time working around our money limitations.

I actually prefer to think about saving money a little differently. If you think about it, spending less than you earn actually has a flip-side: "earn more than you spend". I like the phrasing here a lot more, since it places emphasis on "earnings", and removes any insinuation of financial limits. At the same time, some people may feel that such a statement may also have an underlying consumerist bent, with the idea of "earning more" having the connotation of profligacy. To some, it may suggest that having higher income could also imply higher spending.

I don't think of it this way -- I've decided to subscribe to the "earn more" philosophy because I find it generally more inspiring. When you think of your professional and financial future, wouldn't you prefer to imagine that "sky's the limit"?

What's Your Financial Philosophy?

We only have so much time to spend in the day thinking about how to take care of our finances. I've found that with that time, I've always preferred to focus on those ideas that give me the inside scoop on how to become a millionaire, how to build wealth, increase income, and invest to grow my net worth -- all topics that mainly fall in the realm of the capitalist. Others may feel more comfortable and more empowered by walking the path of a pure frugalist.

Either way, I think that to some extent, this is just mincing words. What's important is that we do what we're most comfortable doing when it comes to our money. When we enjoy how we handle our finances, it increases our chances of achieving our goals and reaching financial success and independence one day.

This article is from Silicon Valley Blogger of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

live below your means

11 Good Money Habits That Will Keep You Out of Debt

1. Create a Budget Based on Life Goals — Not Numbers

2. Charge Only What You Can Afford to Pay Off Every Month

3. Look for Savings on Everything You Buy

4. Buy Groceries Based on What's on Sale and in Season

5. Organize Your Bill Payments to Avoid Lateness

6. Map Out Your Long-Term Financial Goals

7. Review Your Finances on a Regular Basis

8. Treat Savings Like One of Your Monthly Bills

9. Learn to Live Below Your Means

10. Switch to a Cash-Only System

11. Make More Money

Like this article? Pin it!

Frugal Factors: What Traits Do Most Savers Share?

1. Recognize the Golden Mean

2. Buy for Quality, Durability, and Timelessness

3. Make the Connection Between Time, Labor, and Things

4. Live Below Our Means

5. Understand the Real Cost of Ownership

6. Distinguish Between Needs and Wants

7. Embrace Satisfaction

8. Understand the Difference Between Spending and Investment

9. Avoid the Use of Credit

10. Know When to Seize an Amazing Deal

5 Dreams You Won't Achieve Unless You Live Below Your Means

Having More Time (and Working Less)

Retiring Early

Finding a Job You Love

Getting Better Raises

Buying When You Want To

Shrinking Your Cash-Flow Period to Create a Better Budget

1. The Math Makes Sense

2. It's Easier to Manage

3. It Helps Reduce Careless Spending

What's Your Financial Philosophy? What It Means To Live Below Your Means

Do You Live Below Your Means or Earn More Than You Spend?

What's Your Financial Philosophy?

3. It Helps Reduce Careless Spending