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Living within your means

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We all enjoy rewarding our hard work with the occasional new pair of shoes, or dinner and a movie. But all those rewards, paired with regular monthly expenses, can really add up. Make sure you live within your means—and avoid going into debt—by following these habits.

Create a monthly budget

Start by writing down all your income from your job, pension, or anywhere else, and then all your fixed expenses, like car payments, cell phone bills, or mortgage payments. What’s left after you subtract your fixed expenses from your income is the money you can use to budget for variable expenses — things like groceries, movies, and clothing.

Categorize your variable expenses into groups (such as entertainment, travel, and food), and then give yourself a monthly budget for each group.

Use a budget calculator

A budget can help you understand your income and expenses, making it easier to find ways to save more money and create a plan to meet your financial goals. Budgeting might sound time consuming, but it doesn’t have to be. There are online tools that can help you create a budget, and stick to it:

Start asking, “Do I really need this?”

Separate your wants from your needs by asking yourself if an item is something you need or simply want.

Try waiting a day or so before purchasing something, and maybe you’ll decide you really don’t need another set of drill bits after all.

Pay in cash

Consider adopting a cash-only policy for paying for your variable expenses. This keeps you from relying on your credit card, which can lead to costly interest charges.

Set aside an emergency fund

Avoid being caught unprepared for those unexpected costs life can throw at us by setting aside three to six months of expenses. If your car breaks down, or if you have to take time off work, an emergency fund will keep you from relying on your credit card or taking out a loan.

Tweak your fixed expenses

Review your monthly expenses to see if there are any services you could go without or don’t use frequently. How about downgrading your TV package or internet speed? For everything else, try calling your provider to see if you can get a better deal.

More money-saving tips:

  • Use coupons at the grocery store
  • Buy second hand
  • Look for sales
  • Make coffee and lunches at home
  • Buy items at the end of a season (such as a lawn mower in October)
  • Find a car-pool buddy

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Next lesson: Good debt, bad debt