Living Within Your Means

The average amount that a person spends in a month is mostly based on his lifestyle and spending habits. A guy with a simple lifestyle (takes public transport to work, eats at fast food joints and only spends on what he needs) would most probably spend less than one who drives an BMW to work, eats at classy restaurants and lives an extravagant lifestyle.

Little rewards, Big leakage
Many of us enjoy showering ourselves with 'little' rewards, like taking a taxi when you think it's late or there are too many people on the bus, or splurging on a sumptuous meal after working overtime for a week. We tell ourselves that we don't do it often anyway, so it's probably okay. But, silently, all these are creeping into our lifestyle and making it a habit. Soon, we find that we are spending much more than we should and we can hardly pinpoint the leakage of wealth!

Peer Pressure
Yes, your friends are doing really well, they are getting houses and cars and wearing diamonds that you need to pawn your underwear to afford. And no, you do not need to compare your financial status with your friends. If your friends can afford that extravagant lifestyle, so be it. You do not need to follow their footsteps or compete to see who has a bigger house, bigger car and bigger diamonds. These are not going to see you through your retirement. If your friends are spending so much on these, they most probably don't have much left to save for their retirement? So, never be pressured by friends or salesmen to commit on items that are going to cost you dearly. Live within your means and have the last laugh when you retire at 40 and see them slog till 60 with that big house, rusty car and yellowish diamond!

So how do you live within your means?

First, jot down your gross salary (the amount you bring home each month). Then, list down your expenses below it. List them in detail, like house loan repayment - $500, groceries - $300, electricity bill - $200, not unknown lump sums under a miscellaneous category. If you are unsure where your money is draining to, it's okay. Draw up a worksheet like those Excel spreadsheets, and fill in tomorrow's date. For a month, diligently record down your expenses. Yes, every SINGLE day. This is the only way to spot your wealth leakage.

After a month, tally your income and expenses. If you are spending more than 80% of your paycheck, you are definitely spending too much! You should save at least 30% of your income as a guideline. From your expenses worksheet, spot your wealth leakages and eradicate them. They are most probably luxurious items or multiple 'little' rewards. Don't fool yourself by consoling yourself that it's just this month that you overspent - because it's your wife's birthday and you had to get that diamond ring for her, or oh, you had to buy that plasma TV that you've been eying for so long and it's on sale. Well, next month it would be your grandma's birthday and the following would be your wedding anniversary. What next?

Every little pleasure you indulge in and every impulsive costly purchase builds up on your expenditure and kills your budget. Always pay yourself (that 30% you need to save) first, then allocate your remaining budget and live within it!

The 3 Golden Rules
1. Know how much you earn and how much you can afford to spend each month. If you can't even work this out, how would you know you overspent? And on what?

2. Do not get influenced into getting big ticket items. If the salesman tells you the item is only on sale today, that you'll miss the offer tomorrow and you have to make a decision immediately, say NO. If you can't make up your mind at any point of time, always say no.

3. Pay yourself (for savings) first, then allocate the remaining amount for expenses. Balance your lifestyle and live strictly within that budget.

Otherwise, you'll never have the last laugh. Most probably you'll be the last to laugh.