Living below our means/living above our means…what does it really mean?

We could play a serious drinking game if we had a party and played, “Let’s watch the financial commentators on any given evening on CNN”–key phrase(s), “Americans have been living above their means” or “Americans need to start living below their means”.   Let’s clarify what this means for everyday folks out there.  Do you know if you are living above/below your means?  What first needs to be determined is what your monthly Cash Flow is each month.   You can refer to your D2D Financial Statement if we have put one together for you.  No big deal if you don’t have the doc, the calculation is all income minus all expenses.  So if you are positive cash flow and are at or above 30% cash flow in your budget, (this is a calculation of cash flow divided into total income, ie, $4,000 income X 30% would be $1,200 would be positive cash flow, the other $2,800 would be expenses).  You are most likely living below your means, CONGRATULATIONS!!  That is most likely very few of us, is it possible?  Absolutely!  Is it easy?  No, but is anything worthwhile easy?   You ask, so if I live below my means, then what?  This means you are not spending everything you are making and are able to save, pay down debt, do investments, etc.  This will help you sleep better at night and you will know that you are securing your financial future and taking control back.  Of course it will not be easy nor will you be able to change your financial position over night, the key is to do baby steps.   Now if you are negative cash flow, meaning you have more expenses than income, you are living above your means.  Perhaps using credit cards to fill the gap.   The next step is to ask the hard questions, “what do I cut?”  Refer to the helpful hints section for some pointers.  But I will probably venture a guess that if you are at this point, it won’t be pretty.  Of course in this age of technology everyone believes they are entitled and have to have cell phones, internet and cable but these “necessities” that have been added into society in the last couple of decades have also added some serious bills to our budgets.  I am reading a lot of articles on “getting back to the basics”, easier said then done but we as Americans will need to start taking control of ourselves and our own personal budget deficits and make a decision to reverse our thinking.  We are going to have to throw “staying up with the Jones'” out the window, frugal is going to have to become the “in” thing or you will be “out”, financially that is.  In this growing tightening economy the extended credit will begin to dry up, and the next question will be “now what do I do?”  Start taking the baby steps now to increase your monthly cash flow, so when/if things get even tighter you will be able to handle it.

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~ by debt2dreams on October 9, 2008.

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