Tuesday, February 12, 2008

Chapter #1 - Living within Your Means

Everbody Drives a Used Car


If you wish to be financially secure, in the future, it is necessary to live within your means. What does that require? Simple put that means that your income must exceed your expenses.

If you are carrying a monthly balance on one or more credit cards, are purchasing items on time, or taking out a second mortgage or other loans your are living beyond your means. There may be more, but I can think of only 4 legitimate reasons to borrow money. These are Educational Loans, a House Mortgage, Medical Expenses and a possibly an inexpensive first car, if needed for employment.

I would go even further and say that if you have no credit card debt and are paying cash for everything but don’t have a savings plan you are still living beyond your means. As a minimum you need to have an Emergency Account worth at least 6 months income and be saving money for your children’s education and your long-term financial goals like retirement.

Now is the time to establish your priorities and to make sure your spending/savings is in line with them. Are name-brand clothes more important than your child’s education? Is a top-of-the-line new car more important than a comfortable retirement? As a first step you should identify your wants as opposed to your needs and be prepared to defer the former until you can afford them.

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