Tuesday, March 2, 2010

Living UNDER your means

For the last few days I have been dwelling on the expression "Live within your means". I have heard the phrase all my life, seen it on frugal blogs, and even used the term on this blog. The more I thought about it I realized that living within our means is a good first step but what we really need to do right now is live UNDER our means. That's what living In The Trenches is all about.

There were a couple of seasons in my life where I was able to achieve this. I had only three payments a month - mortgage (down to $15,000), electric, and phone. I did not have a checking account because it was just as easy to buy three money orders. Can you imagine? My monthly required expenses were under $650. I was able to pay these on less than one paycheck a month so all the rest of my money I could choose to do what I wanted with. What freedom!

Of course your first question should be what about taxes, house, and car insurance? The bills came in and I paid the full amount for the annual coverage and didn't think about it again for another year.

I had no credit cards, no checking accounts, and was classified as a credit ghost. (My house was on an owner contract so not recorded with the credit bureaus.)

It was great! And, then after working so hard to achieve this position what did I do? I got stupid! But not at first. The reasons made sense at the time but in retrospect there were other options. I started spending more (that was fun) and then made the first compromise of getting a home equity loan to fix up the place. (I could have saved the money). Then I got a bigger place and another mortgage payment. Then I started a small business using borrowed money. And on and on. What happened? I set aside my NO DEBT rule and it was like quicksand pulling me back in.

I attend church and there is a word called repentance. It evokes scary images of getting beaten for our wrongs, feeling guilty and bad. Then I heard a sermon about the real meaning of the word is "turn around and go the other direction". Wow. What a cool word. We are going one way, we realize that it is the wrong way, so we just turn around and head back the other direction. It doesn't mean you will get back to where you should be immediately but it does mean that you are now headed the right direction again.

Now, lest you think that I'm making a moral judgement about debt vs no debt, I'm not. But, the point is - you have to choose to go one direction or the other. We will either choose to get into debt or choose to get out of debt. We can't do both at once or we will be like the perpetual dieter who is always on a diet and never looses any weight.

I digress. Back to the living below our means, or, even within them. EVERY TIME WE USE CREDIT TO PAY FOR SOMETHING WE ARE LIVING ABOVE OUR MEANS. Even if it's only until the next bill arrives. We can fool ourselves by saying that we have money in the bank and it's just a convenience but it's still living using credit, even for a day.

With that said what can we do? My goal (and to be honest, I am far from it right now) is to get myself back to the place where all my necessary expenses are less than 50% of my income.

I have to get going for now and will get back to this subject. Hopefully I have sparked your curiosity and imagination. For now let me leave you with this thought: How much is your monthly income now? $1,000? $4,000? $8,000? What would happen and how would your life change if you were able to get your expenses down to half of that? What are some of the potential benefits?

1. Big savings accounts.
2. Buy what you want and need with cash. If you didn't have enough this month you could save to get it.
3. Less worry about layoffs, bills, and the future.
4. Financial freedom.

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