If you have trouble living within your means and staying out of debt, Annet Katusiime gives you some tips on how to manage the difference.
Most people love shopping yet most items they buy are for consumption. The downside to this is it sometimes leads to debt and monthly financial struggles.
If you have trouble living within your means and staying out of debt, here are some tips on how to manage the difference.
Needs and wants
One important idea in economics is that of needs and wants. Needs are goods or services that are required. This includes food, clothing, shelter and health care.
Wants are goods or services that are not necessary but that we desire or wish for.
Before you make a purchase, ask yourself if you really need it. What will happen if you have not bought that specific item for two days? Knowing the difference between needs and wants will help keep you out of debt.
Income and expenses
Make a list of any or all your income from your job, side business, pension and anywhere else. Also list all your expenses from household to personal expenses. Knowing the difference between income and expense helps you to control your expenditures and plan better for the fixed expenses.
Track your expenses
I personally have a small booklet that I use to write down my daily expenses. It helps me be in control of my financial plans. A spending plan is very important and if you are not a fun of writing, there is online budgeting services that make the process easier. If you want to live within your means and attain your goals, you have to track where your money is going.
Do not compete
We live in societies where we want to live like our neighbours, friends and co-workers or celebrity mentality and lifestyles. All these categories of people might drive nicer cars, build mansions or take expensive vacations and you want to do the same. Just imagine that person you are competing with might have saved for his expenses and is in control of his personal finances or he might have financed his Lexus with a loan facility and you are struggling to keep up the pace, be realistic and live within your income.
Keep emergency fund
Last week, my car battery went flat in the middle of the road. I got stuck for some time and was late for my meeting. Luckily, I did not have to borrow to fix it because I had emergency funds saved up. If you don’t have three to six months of expenses saved up, start saving now. When something goes wrong, you won’t have to take out a loan to pay for it.
Cut down on expenses
If you’re still struggling to live within your means, take a hard look at your expenses. There is probably something you can cut out or at least cut down on. I was training a group of women and one lady confessed that she constructed her rentals from cutting expenses on pedicure and manicure she used to make every week. Ask yourself what are those expenses you can cut down. For household items, endeavour to shop in bulk and measure the quantities to be utilised on a daily basis.
Boost your income
If all else fails, please work hard to boost your income. If you can’t get a pay raise and you find yourself financially struggling to make ends meet, look around for better alternatives that can help you increase your income.
Anybody can live within their means and still enjoy life. The trick is, think about what you really enjoy and find a way to get it for less. It is advisable to spend your money on income-generating activities than consumption. Our lives depend on needs and wants but spend wisely!
Ms Annet Katusiime is a certified trainer in financial literacy.