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May 2009 - Live within your means

Live within your means

☳ by Adam Aspilla

In our present economy, there are a lot of people in financial trouble because of global economic melt-down. Nevertheless, with or without world financial crisis, there are people with decent income, yet, they are in financial bind not because of bad economic condition, but because they do not know how to manage their finances. 

Big income does not necessarily mean you are financially stable. It is not the amount of your income that determines your financial security, but it is how manage your money. The general principle is to live within your means. What does it mean? Generally, it means do not spend more than you earn.

How to do that? The best way of doing it is to make a family budget. By that, you have to write down your monthly net income together with your monthly expenses. Your monthly expenses include your basic needs like: food, mortgage payment or house rental, car payments, gasoline, insurances, utilities car repair and other expenses that are essential.

In preparing a family budget husband and wife should do it together. The rule of thumb is the first 10% of your income should be given to God which is called “tithe” to the church you worship, if you are a believer. The next 10% is for your savings. The remaining 80% is for your basic expenses, purchase of new appliances, clothes, and others. This is called: 10-10-80 principle.

Because of human nature of not being content (the desire to acquire more), discipline is necessary, to strictly follow the budget.  When you discipline yourself you spend only what is in your budget. You do not use your credit cards or line of credit for purchases or expenses not listed in the budget. Should you wish to spend outside of your family budget it should be taken from the remaining 80% of your income if an amount is still available.

Again, financial crisis does not only arise when there is a global recession, it comes anytime despite your stable employment if you do not know how to manage your money - that is spending beyond your means.

Preparing a family budget as above outlined, and following it strictly would insure that you will live within your means.  Living within your means could avoid financial crisis in your life even during bad economic environment, for your savings which is part of your budget, would sustain you during a period of crisis.



Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.