The second item on the list of Habits of Successful People is: they live within their financial means. Statistically they allot 25% of their income to housing, rent or mortgage. 15% to food. 10% to entertainment. And 5% of their net annual to holidays/vacations. I can tell you from my wife’s previous occupation of financial consulting, that the vast majority of people do not live within their means.
A Huffington Post poll revealed that only 10% of Americans are living below their means or spending less than they make. Why is this so and why is it important?
Successful people guard two things with serious conviction: time and money. They understand the importance of financial responsibility and freedom. When I first started writing the Dream Big blog I was not sure where I wanted to go with my writing, but that was clarified for me when I compiled the list we are working through now.
In the U.S. people make one fatal financial mistake: they fall for the lie that everyone has to have credit cards. We are led to believe that it is normal and okay to accrue credit card debt, which leads most down a destructive road. I have written about this topic a lot and learned that the average credit card debt per household in the U.S. is just under $15,000.
So why is living in your means important? When you spend less than you make and do not rack up debt, you allow yourself freedom and mobility. What I mean is you have the freedom to switch jobs or occupations if your current situation makes you unhappy or unfulfilled! So many people I speak with about starting their own business or changing jobs simply cannot take a job making less money because they owe so much money; they have massive debt.
So what do you do if you have stacked up huge debt? You must begin immediately assessing the damage and take action to pay the debt off. I recommend making serious sacrifices for a couple of years in order to pay down credit card debt.
My list of recommended cuts are as such:
- Pay television, cable, satellite, internet based. The average pay television bill in the U.S. is $123!! And most shows can be streamed for free! Plus there are better things to do with your time. Just sayin. Estimated savings per month (ESPM)… $123
- Shopping at premier stores. Swallow your pride and start bargain hunting! Marshall’s, TJ Max and even thrift stores are great ways to get what you need at a fraction of the cost. ESPM…$100
- Stop smoking and drinking. Not only is this good for your budget your lungs and liver will both thank you! ESPM…$150
- Eliminate eating out. Look at eating out as a luxury, one that you can no longer afford! For special occasions find a nice, inexpensive spot to dine. My wife and I found a great Chinese restaurant that we can both eat for under $20. ESPM…$100
- Elaborate entertainment. If you have credit card debt I can safely surmise that a large percentage of the balance is due to entertainment you could not afford in the first place. Get creative when planning family entertainment: go to the park, rent a DVD from Red Box and have family movie night, attend a free music fest. Entertainment does not have to be a $100+ night at the theater. ESPM… $200
- Starbucks or coffee-house. This is a personal peeve of mine as I know lots of folk that have a $70+ coffee habit each month. Buy a good $9 bag of coffee and brew at home. ESPM… $50
- Memberships. Gyms are the worst investment known to every financial counselor. Every one of them had this at the top of their lists. Buy your own weights, run outside and stop wasting $75 each month. ESPM… $75
- Magazine subscriptions. No explanation needed. ESPM… $20
- Car payments. If you have more than 1 car payment, you are handling your money foolishly. Automobiles depreciate. One financial advisor said to me, “finance assets that appreciate, but never finance assets that depreciate.” Rework your current auto situation and eliminate 1 or more car payments!
- Name brand groceries. I shop at Aldi and love it. My wife is amazed at what we get for the money. ESPM… $200
- Misc. waste. Most people have a couple hundred dollars each month that simply vanishes. Well, find it! Keep all your receipts for a month and identify any holes in your ship. ESPM… $150
Once you have eliminated unnecessary spending take the surplus and combine it with your minimum payment on your lowest credit card debt. Imagine how quickly you could pay off $5,000 if you were paying $600 to $1000 per month! Once you have paid off the first card, apply your total payment from card 1 plus the minimum from card 2 and hammer that debt down. You proceed in this fashion until you have paid your credit card debt off.
I have talked via email with a few people who decided to pay themselves out of debt. They all said the sacrifice was so worth the freedom and relief they felt once the debt was paid off. I strongly encourage you to take a look at your finances. Do not tell me you cannot find extra money because I know most people can.
Make a short-term sacrifice for a long-term gain. You will thank yourself!