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Money Management Part 3 Living within your means

Staying Beneath Your Means

In the previous article in this series, Accomplishing Goals with Money Management, we reviewed and refined our Long-term Plan, we projected gross and net income, and we learned the true definition of prioritizing for a successful money manager.  In this article, we’ll discuss the successful strategies for living and staying beneath your means.

If you learn one skill that will make you more successful in money management, it should be how to live beneath your means—or how to spend less than you make.  This is no great secret; the problem is that few people follow this critical strategy for success.

In the last article in this series, Accomplishing Goals with Money Management, you recorded your gross and net income.  Go back to that worksheet to retrieve the figures; now take ten percent of your net income to be set aside, so you must stay beneath your means, determining how you will live on only ninety percent of your take-home pay.  If you think this is impossible, consider that you are a manager and your budget has been cut, but you must still complete your projects.  You will need to employ your self-discipline and creativity to accomplish this goal.

Most people do not become financially independent using their income alone: they must set aside part of their earnings in order to invest—because it is true that it takes money to make money, and staying beneath your means is one of the most important strategies you must utilize to accomplish your financial goals.  This strategy must be enacted as part of your lifestyle: you must use it continually, every day.  The money you set aside will grow exponentially, while the money you earn rarely increases.

Successful Strategies

The best part of money management is that you can set your own goals and create the plans or strategies to secure your future.  Being your own time and money manager, you can change the strategies you develop, as you learn more, save money, and grow your future.  Let’s consider such a situation:

If one of your strategies is to invest five percent of your net pay per month in a savings account, and you realize after three months that a money-market account earns more interest than the savings account, you can make the executive decision to transfer the capital into the highest yielding investment. 

The key to building successful strategies for money management is flexibility with focus.  As the money manager, you will struggle with focusing on your long-term goals while responding to dynamic situations in your life.  Just when you believe that you can save a little more this month, you realize that you must buy a new appliance, for example.  It’s impossible to anticipate everything, but with some flexibility—and by living beneath your means—responding to these changes will become easier.

Flexibility must be checked by good judgment; for example, you may have the flexibility in your budget now to purchase something, but does it make sense to purchase that item?  You can’t learn good judgment, but you can use your common sense to logically work through each decision: you must ask how each decision impacts your long-term plan. 

One way to learn good judgment is to analyze others’ decisions.  You can discuss your strategies with someone you trust and respect, or you can solicit their strategies.  Since you have set aside time each week to educate yourself, you may learn good judgment skills from an advice column or radio show.  Another good way to learn judgment is by analyzing differences; for example, don’t be afraid to use your flexibility as a money manager to put your money in different places to track the success of each.

Remember to keep your long-term plan in mind every time your circumstances require flexibility.  Your increasingly good judgment will guide you, and your ability to be flexible will allow you to make wise decisions that will contribute to your goals.

In the next article in this series, we’ll discuss concrete strategies for spending and we’ll separate wants from needs.

Money Management Part 4

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