Know Thyself
Living within your means makes so much sense and seems so simple. But how many of us struggle with this issue? To live within our income requires us to know how much we make that we actually have control over (our discretionary income). We don’t get to choose whether to pay federal and state taxes, Social Security contributions, etc. We do get to decide what to do with the money that is left over. Housing, auto, food, investments, recreation, insurances, and more. They all need to be considered along with other expenditures that are personal to the individual.
Building Your Budget
There are numerous sites that will help you create a monthly/annual budget. I don’t intend to do that here. What I will do is give you some basic guidelines that will help you decide the particulars for your spending. As I said above, there are several automatic deductions from our paycheck. I believe if you want to live a life in balance there are only 3 caveats. First, save at least 10% of your gross pay for long term goals — primarily retirement. Second, expect to control no more than 50% of your gross pay. Taxes and other non-optional payments will take care of the rest. Depending on your tax bracket, that percentage may be slightly higher or lower. And finally, NO CREDIT CARD DEBT!
If you can adhere to those guidelines your lifestyle will be comfortable, if not extravagant. Most importantly, you will be in a position that, when life’s events play out and there are misfortunes, you will have the financial capacity required to respond. You will be response-able. You will be able to live in the moment, enjoying today and worrying little about tomorrow. If you have dependents, you can be assured they will not be at risk as your life unfolds.
The Beauty of Balance
Creating a spending pattern that incorporates the 3 caveats listed above gives you tremendous flexibility. You don’t have to follow it 100% of the time! When that special event comes along that is outside the budget, go for it. You won’t be mortgaging the future and you won’t need credit card debt to make it happen. Now that is really Living in the Moment!