To succeed financially you should live below your means unless you got life’s largest purchasing decisions taken care of!
Many will tell you, you should live below your means to succeed financially and while that is true it is a matter of perspective.
You need happiness, a sense of enjoyment and fulfillment in your life and sometimes that takes money to do. Having a dinner or drinks out with your friends is something most of us enjoy and we’d hate to have to lessen the experience and enjoyment.
However, living below your means; going without a night out or finding a cheaper alternative is needed for many. Living below your means works well because you are reducing your expenses and saving more. Add in paying off debts and using compound interest to your advantage will surely bring a positive financial effect.
Many of life’s smaller guilty pleasures like a night out are needed and well deserved; you worked hard and don’t want to feel like you are restricting yourself. Of course this can go overboard with uncontrollable desires and impulse purchases in which case you would need to live well below your means to recover.
Don’t live below your means
So what must you do so you don’t live below your means and can still do well financially?
The short answer is to get life’s largest purchases (i.e. home and vehicle) right.
Getting life’s largest purchases right
If you want to get life’s largest purchases right here are some great ways to achieve this!
- Do not overpay for your home or vehicles
Overpaying will make it very difficult to afford to do other things you want, to afford to do things that make you happy.
Your mortgage payments, insurance, maintenance and utilities should not be more than 30% of your after-tax income. If it is, the house you have is too expensive!
Your car payments, insurance, maintenance and gas should not be more than 10% of your after-tax income. If it is, your car may be too expensive or you live too far away from work!
- Save up and put money down on the big purchases
Making a large enough down payment on your home or vehicle is a great way to reduce the payments down to an affordable level. Instead of just 5% on your first home, save up and make a 20% down payment instead!
The more you make as a down payment means less money you need to pay out later, especially in interest charges!
- Know what debt you are taking on
For life’s largest purchases we may need to borrow however it is too common for people not to know what type of debt they are taking on; what the terms are and how much they are paying in interest and other fees for example. Before taking on debt to make some of life’s largest purchases, ask about what you are signing and take a read of it! You may not understand the legal jargon but sections where they discuss the amortization, term length, interest, payment frequency and anniversary payments are key areas to look at!