How to live within your means

This entails making sure your monthly costs and living expenses are less than your net income – what you earn after taxes. Essentially, you need to balance your books.

If you can live within your means, you’ll be able to stay out of debt and save money for your future. 

A good way to work out if you’re spending within your means is to keep a daily record of where your money goes in a typical month. Try the following steps.

Include everything, from regular payments like bills and rent or mortgage. Expand it to include what you spend on transport, food, and even the snacks you may buy on the way home. 

It could be useful to track your expenses using a digital tool or your bank's mobile app. You may even be able to set up notifications to let you know when payments are made, or when you reach a certain balance.

At the end of the month, work out what you’ve spent. Then subtract this from your take-home pay.

If your monthly expenses are less than what you earn, then you’re living within your means. If not, then you’re spending more than what you’re earning. 

It can be quite humbling to see where you’re spending your money, and how you allocate it.

Take time to analyse which expenses are priorities, and which ones you can reduce or avoid. This will help you form a clearer picture of how you can make changes. 

It’s often difficult to make good decisions about what to buy and how to spend when you have competing demands for your money.

Try classifying your expenses into the following categories.

Unavoidable costs, such as rent, mortgage, utilities, food, transport, phone, debit orders, and others. You need to cover these to keep you and your loved ones comfortable. 

Things you spend money on that aren't essential. These can include eating out, going to the movies, buying new clothes, holidays, and treats. You can survive if you cut back on them. 

If you can keep these categories in mind when you’re making a decision involving money, you may be able to change your spending habits and improve your financial wellbeing.