Sunday, January 11, 2015

Living Within Your Means Part I

In my quest to create financial freedom for myself, I've relied on a series of books for advice and ideas. I previously mentioned that I have been referring to Nancy Dunnan's How to Invest $50-$5000. The Small Investor's Step-by-Step Plan for Low Risk Investing in Today's Economy. Tenth Edition.

I've also been reading two very different books in terms of tone with each other. One is You're Broke Because You Want to Be: How to Stop Getting By and Start Getting Ahead by Larry Winget. Winget's tome is very much in your face from the start with a very honest, tough love kind of financial advice that some might not find comforting in the least. Personally, I find it amusing and quite appreciate the forthright tone of Winget's words. This is a man who reached financial success, lost it and climbed the mountain anew learning and using the lessons of his failure.

The second book Frugal Isn't Cheap: Spend Less, Save More, and Live Better by Clare Levinson. Levinson's book takes a more friendlier tone using personal anecdotes to relay her message that being frugal isn't being cheap. It just means that you are aware of your financial situation and not only respect where you want to be financially but that you care about where you want to be.

Now while both authors have different ways to bring about their message, one of their common threads is living within your means. Now this sounds like a simple concept, but you'd be amazed at how many people fail to live within their means. The over-reliance on credit to pay for virtually everything leads people to live a life way beyond that they can afford. This leads to massive credit debt that takes forever to pay off, leading to big profits to the credit card companies. Now my case is a little different.

Before I was fired from my job at the end of June, I was living within my means. Doing so, I was able to put away a decent little nest egg and was able to live comfortably. My mistake during unemployment was that I didn't "cut the fat" fast enough. What do I mean by that?

I made the assumption that I would find a job soon after my time off to enjoy the summer with the kids. I mean, why wouldn't I. I had 12-years of experience at one bar and a total of 20-years experience in the bar business. Lo and behold, I was in for a big and humbling surprise. Nary any interest in my resume led me to realize that my days in the bar business were over and I had to look in another direction for employment. Now I don't want to harp on ancient history, but what I should have done was cut my expenses from the beginning, instead of doing so when I saw that I would eventually take a considerable pay cut.

I tried to keep life as it was before I was fired and that was my mistake. I couldn't live life as before because I was only getting a fraction of what I was making, first from unemployment and then from my current job. So what I, and many of us need to do is this: LIVE WITHIN OUR MEANS. So what does that exactly mean.

I'll put it this way. If what you pay out in bills and expenses in a month is less that your income then you are living within your means. If you borrow from Peter to pay Paul on a monthly basis to help pay off what you spend in a month then you aren't. Now in my experience, its a matter of looking at your expenses and finding out what isn't needed and "cutting the fat away."  One of the things that Larry Winget suggests is taking an account of what you spend in the form of a budget sheet. Here is the sheet he has listed in both his book and on his website (You can download it in PDF format):

If what you make is less than what your number is on the Total Debts and Expenses line then you need to lower your expenses.

Two recent examples of expenses that I lowered was my Cable and Netflix. My cable consists of cable, internet and phone and I was paying close to 220.00 a month. This is an obscene account. If it was up to me it would all go with the exception of the internet and the phone. Since my wife and I both work similar daytime schedules, the kids come home alone after school. Since they don't have cell phones (no need to additional expenses), the house phone is our link to the kids. I was able to lower the cable bill by almost $60 dollars by lowering my plan from the Gold plan to the Value plan. Now this eliminates all our premium channels and other channels.

In terms of Netflix, I've always had the movie rental plan. When Blu-Ray movies became available I upgraded the plan. At most I used the 5-movie at a time plan which caused me to pay almost $50 a month. Now I could afford that plan because we really don't go out to the movies. That in itself is a BIG expense, especially if you have kids. Since July, I downgraded from the 5-movie plan to the 3-movie plan to the Streaming only plan. I went from paying close to $50 a month to less than $7.99 a month. As per the post A Quick Update On Our Streaming Plans And Prices from Netflix blog page dated May 9, 2014:
To continue adding more movies and TV shows, we are increasing the price of our $7.99 a month streaming plan by one dollar to $8.99 for new members. Current Netflix members get to keep their current price for two years, enjoying HD-quality movies and TV shows on any two screens at the same time.
With the channels we do have, plus Netflix and Hulu there is enough to watch. I should see a savings of close to $80 a month with the reduction in Cable and Netflix services. If I could find these layers of expenses to cut, I'm sure you can to. You just have to evaluate what you need and what you don't.

I'll continue to revisit my attempts to live within my means in future posts. Feel free and comment to let me know what tips and tricks you have utilized to live within your means. I'd appreciate hearing what you've done.

Until next time,

For Further Reading:
- Larry Winget's official website
- Clare Levinson's official website
- Nancy Dunnan's column Dunnan on Dollars from the Online Investor website

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