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This post comes from Angela Colley at partner site Money Talks News.
Americans have a love affair with credit cards. According to the latest Federal Reserve figures, we have $853 billion in credit card debt.
As a nation, we love to shop, but sometimes that consumerism leads to debt and monthly financial struggles. If you're having trouble living within your means and staying out of debt, we have 10 tips to make sure you never end up with more month than money.
1. Know your income and expenses
The first thing you need to know is what's coming in and what's going out. Make a list of any and all income you have from your job, side work, pension or anywhere else. Then make a list of every bill you have, from rent to car payment. (Don't forget bills that may not arrive monthly, like car insurance.) These are your fixed expenses -- the ones you have limited control over.
The difference between your income and fixed expenses is what's left for the expenses you can control -- your variable expenses.
Most of us have sufficient income to cover our fixed expenses. After all, we wouldn't have taken on obligations we couldn't pay. It's the variable expenses that so often get out of control.
2. Track your expenses
A spending plan, otherwise known as a budget, is the single best way to ensure you live within your means.
A spending plan is exactly what the name implies: It lays out what you plan to spend. To keep tabs on your progress, or lack thereof, you'll need to track your money as you spend it. This used to involve the laborious process of writing down everything you spent, dividing the expenditures into categories, adding them up, and comparing those totals with your plan. These days online budgeting services make the process easy.
If you want to live within your means and reach your goals, you have to track where your money's going. It's the only way to nip problems in the bud.
3. Separate wants and needs
When it comes to shopping, knowing the difference between a want and a need will help keep you out of debt.
Before you make a purchase, ask yourself if you really need it. If you don't, wait before you buy it. I use the 48-hour rule. If I see something I want to buy but don't think I absolutely need, I'll wait 48 hours before I buy it. More often than not, I change my mind.
4. Don't compete
Don't fall victim to the "keeping up with the Joneses" mentality. Sure, your friends or neighbors might drive nicer cars, have the newest technology, or take expensive vacations, but that doesn't mean you have to do the same.
Think of it this way: Your neighbor might have financed that Mercedes, put the new flat-screen on his credit card, and taken out a personal loan to pay for a vacation. You're not a lemming; don't follow the group off a cliff.
5. Pay in cash
It isn't always easy or immediately gratifying, but adopting a pay-in-cash lifestyle can save you from falling into a debt trap. For example, when I first moved out of my roommate's place and into my own apartment, I didn't have a TV. At first, I planned to pay for one with my credit card, until I did the math.
Once I realized that interest would radically raise the cost of the TV, I decided to wait. I watched TV on my laptop for a few months, saved up, and bought the TV I wanted outright. I didn't miss out, and I didn't pay extra.
If you can't afford to buy something now, don't pull out the plastic. Instead, save up and pay cash.
6. Keep an emergency fund
Life is unpredictable. In the last year my car broke down, I fell ill twice, I had to take unexpected time off work for family issues, and my AC sprung a leak. But I haven't taken on any debt because I have an emergency fund to tap.
If you don't have three to six months of expenses saved up, start saving now. When something goes wrong -- and it will -- you won't have to reach for your credit card or take out a loan to pay for it.
7. Save money wherever possible
Saving money will help you stop overextending yourself financially. Try these tips to get started:
8. 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. For example:
Go through your bills and cancel any service you don't use frequently. For the stuff you do use, call the provider and see if you can get a better deal.
9. Boost your income
If all else fails, boost your income. The simplest and most gratifying way is to make more at your current job by getting a raise. If that's not in the cards and you routinely find yourself struggling to make ends meet, it's time to look for a better-paying job.
You have no right to complain about being underpaid if you're not at least looking for better alternatives.
Of course, there are many other ways to increase your income, from selling your stuff to side jobs to turning a hobby into a business. Where there's a will, there's usually a way.
10. Don't deprive yourself
While this is the last tip, it's the most important one.
When you hear terms like "living within your means," especially when combined with words like "budget," it's natural to think about deprivation. You might think there's no difference between "budget" and "diet." They're both about deprivation, right?
Wrong. A diet can be deprivation: Cottage cheese isn't anything close to ice cream. Living within your means, on the other hand, doesn't have to be about deprivation. Spending less on insurance by raising your deductible doesn't negatively impact your life. Nor does having a drink at home with friends instead of paying $8 each at a bar.
In short, you can live within your means and still enjoy life. The trick? Substituting imagination for money. Think about what you really enjoy -- then find a way to get it for less.
Stacy Johnson contributed to this report.