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Financial Freedom: Budgeting and Living Within Your Means

Updated on February 2, 2011

 Finances seem to be a top concern for almost everyone, so I would like to share some conventional wisdom for budgeting, living within your means,  reducing debt and increasing savings.


Before you can budget your money, you need to know what you spend. Start by going through all your bills, and listing the amount owed monthly for each. Then, carry a notebook, and record every penny you spend or make, for the next month. This will give you a good idea of your habits and leaks.

The next step is to plug these numbers into a simple chart, like this one:

  • List all Income:
    • His:
    • Hers:
    • Investment:
    • Other:
  • Subtract Taxes and Payroll Deductions: Self-employed, make sure you compute these expenses accurately! You don’t want to run short and have to take out a lone.
    • Federal Withholding:
    • Social Security
    • State and Local Taxes:
    • Insurance:
    • Investments/Retirement:
    • Union Dues:
  • = Spendable Income:
    • Housing:
      • Mortgage/Rent:
      • Taxes, insurance, and maintenance:
      • Utilities
      • Phone & Internet:
      • Improvements to save for:
    • Food:
    • Transportation:
      • Auto Payment(s):
      • Insurance:
      • Gas, tolls & parking:
      • Maintenance/Replacement:
      • Licencing and Taxes:
      • Mass transit fares:
    • Insurance:
      • Health:
      • Life:
      • Disability:
    • Debts: All debts that are not home or auto related. Record total amount owed and minimum payments.
    • Entertainment:
    • Clothing:
    • Savings:
    • Medical:
    • Miscellaneous:
    • Investments:
    • School/Child Care:

Are you spending more than you make? How can you change that?

Know what you can afford.
Know what you can afford.

Living Within Your Means:

This is an area that calls for much discretion and honesty. What do you really need? Can you afford your lifestyle?

If you find that you are spending more than you make, or are not able to maintain what you have, it is time to make some decisions about your lifestyle. I recommend looking carefully at every area, and determining one small change you can make.

One of the easiest ways for me to cut out waste, is to think yearly. Take those small daily expense, and figure out what they cost per year. Is that cup of coffee really worth it? How much could you save by brewing it at home?

How often do you eat out? How much do you spend on your clothing? If you are married and have children, is working outside the home in your best interest? Ouch! I know this is a touchy subject, but it is worth figuring how much you really make, once all the expense of related to your working are deducted.

  • Gross annual income:
  • Gross weekly income:
  • -Expenses:
    • Taxes:
    • Transportation:
    • Lunches/Snacks:
    • Restaurants/Convenience Food:
    • Work Related Clothing:
    • Child Care:
  • Total Expense:
  • Net Additional Family Income:
  • Net Income/Hour:

When we wanted to buy our home, I looked at going to work outside the home, but figured out that I would have to make close to $16/hour, just to bring in $1000/month (the minimum amount I was willing to leave my children for). At that time, the best jobs I could find started at $12/hour, with very slow growth. Running a home-based business was a much better plan for us.

If you find working outside the home needed or to your advantage, consider these ways of making it more profitable.

  • Work Part-time, and trade child care with another mom.
  • Work weekends or odd shifts, which often pay more, and allow your spouse to watch the children.
  • Carpool or use public transportation.
  • Telecommute.


Reducing Debt and Increasing Savings:

Once you are on a budget and living within you means, it is time to start saving and reducing your debt. This is the plan I am using to get ahead:

  1. Determine how much extra you have each month to use in this manner, then guard it!
  2. Save one months worth of living expenses. This money is to help out in emergencies, so you do not have to barrow to fix your car or travel to a funeral. If you should need to use it, replenish it as quickly as possible.
  3. Pay off credit cards.
    1. List all amounts owed, along with minimum payments.
    2. Make the minimum payment from this month your standard payment, plus any extra put on the card.
    3. Use your ‘extra’ towards paying off your highest interest card–or if you like immediate satisfaction, your lowest balance.
    4. When one card is paid off, apply all that you were paying to the first card to the second one. This is called the ’snowball effect’, because you will see things being paid off faster and faster.
  4. Save another months worth of living expenses. Now that you no longer have credit card debt, this number is lower than it was before!
  5. Pay off discretionary and recreational purchases, like boats, four-wheelers and tractors/lawnmowers. Use the money that you were using to build your savings.
  6. Save another months worth of living expenses. You now have three months worth!
  7. At this point, split the amount of the extra between paying down your auto debt(s), student loans, etc. and savings. This step is complete when you have six months worth of savings and only your mortgage for debt. With six months worth of savings, you should be able to buy your next car out-right, thus saving yourself interest!
  8. Decide a certain amount to invest, either for retirement, further education or world travel…what ever really appeals to you that you have not been able to do! With the rest, pay off your mortgage.
  9. Save One years worth of living expense.

Remember to celebrate each step of the way. When one step is completed, I usually take one months ‘extra’ and put it towards some splurge that we have been wanting, or an extra nice date with my husband.

Don’t get discouraged if the going is slow. Take it one day at a time. If something goes wrong, and you get off track, start again. If everything stays steady, we will be debt free in ten years…however, life is not consistent!

Once you are debt free, you will have more time and money on your hands, to do what you really want to do.

All Text and Photos (c) Copyright 2010

Ivorwen, 2010.

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    • Ivorwen profile image

      Ivorwen 7 years ago from Hither and Yonder

      Thank you! I would really like to live with less than we do, but it is really hard to know where to cut back sometimes, especially when you have a big family.

    • magnoliazz profile image

      magnoliazz 7 years ago from Wisconsin

      You would make a great financial planner! Excellent advice.

      I see some people that just spend, spend, spend! They buy stuff they don't even need. Then they become a slave to their "stuff"

      I believe in living with a minimum of things...its less stressful and less expensive too.

    • Ivorwen profile image

      Ivorwen 7 years ago from Hither and Yonder

      Springboard, that sounds like an excellent idea. I would am working on getting to the point where putting away 10% every month is doable. We were almost there, when my husband lost his foreman position -- the company laid off so many people there was no one left to foreman -- but at least he still has a job. We are very grateful for that.

      My husband's grandfather always lived by the 10/10/80 rule. Give 10%, save 10%, live off of 80%. He ran his own business, invested and retired with plenty.

      I agree that if people lived this way, recession would be almost impossible. If people just followed the 80/20 rule when buying, our economy would be so much better right now. We may not have had the whorl-wind growth, but we would not have the crash either.

    • Springboard profile image

      Springboard 7 years ago from Wisconsin

      I always recommend the 80/20 rule, though I will admit it's a harder rule to get running along if you are already in an 'established' position. Generally it simply means you only spend and live on 80% of your net income. Net's important because we never see our gross, so we can't count it. Live on 80% of your net and put the other 20% in the bank, or in other investments.

      You then apply the rule to every major purchase from there on out, which furthers your ability to reduce cost. Sort of compound reverse spending, if you will. If you can afford a $200,000 house, you start looking for houses around $160,000. If you can afford a $20,000 car, you start looking for a $16,000 car, and so on and so forth.

      If nothing else, over time that 20% becomes extremely helpful, and through compound reverse spending actually eventually becomes much greater than 20%. So, when the credit card companies decide to jack their rates up, you can pay them off and stick it right back to them. When the job goes away you can have extended living expenses. When the car breaks down you can have money to fix it. If a major medical procedure comes around, you can have the money to cover it.

      Most importantly, and contrary to popular belief, the less you spend and the more you save, the less you'll work, the shorter period you will have to work, and the more you will be able to afford to do to enjoy living.

      Absolutely living below one's means is essential to a healthy and prosperous financial life. I wish more people lived that way. I think had that been the case, the recession might never have happened.

    • Ivorwen profile image

      Ivorwen 7 years ago from Hither and Yonder

      LiftedUp: I have heard that most Americans are only three weeks away from bankruptcy at any given point, do to a lack of savings (and that was when times were good), to to find out that most business go under for a lack of $200 a month is shocking! I find that cutting the profits a little too close.

    • LiftedUp profile image

      LiftedUp 7 years ago from Plains of Colorado


      I enjoyed seeing how many times you included "Save one month's living expenses" in your list. It is a great idea, and would help businesses as well as individuals; I have read that most businesses go under for the lack of $200 per month in profit.

    • drbj profile image

      drbj and sherry 8 years ago from south Florida

      To subjects should definitely be taught to every single high school student: 1) how to budget, and 2) how to write a check. It's almost unbelievable how many young people I encounter who don't really know what budgeting is, and how many have difficulty writing a simple check correctly.

    • Mitch King profile image

      Mitch King 8 years ago from Wilsoville, OR, USA

      This should be something that every teen must study in school. Too many people do not learn the fundamentals of budgeting early and that is why so many are buried in credit card debt.

    • profile image

      efeguy 8 years ago

      true good budget,difficult to succeed.

      budgeting is the key.

    • Ivorwen profile image

      Ivorwen 8 years ago from Hither and Yonder

      Where business is concerned, it seems to be a very fine line as to debt. From what I have studied, many companies utilize it to minimize their risk against law suits. However, many small companies have gone under, because they could not get further loans, and while utilizing loans for a business may work out fine in most instances, it is not a model for personal finances.

    • hypnodude profile image

      Andrea 8 years ago from Italy

      This is true also for almost every country in the world, in Italy they call it Creative Finance or Economics, that is work with money from loans and save nothing. Instead some business not so "advanced" working without debts and loans but with their own saved money are going fine. Of course they belong to their owner and have no CEO or board of directors.

    • Ivorwen profile image

      Ivorwen 8 years ago from Hither and Yonder

      That is an excellent tip, 2patricias. I have been grocery shopping with cash for more than a year now, and find it works quite well. At the beginning of the month, my husband and I withdraw the amount we need, and that is all we spend. I also save any that is left over for stocking up, when the stores have a sale.

    • Ivorwen profile image

      Ivorwen 8 years ago from Hither and Yonder

      Thank you Hypnodude. #9 is probably one of the hardest points to focus on, but if it was standard practice, our country would not be in the financial mess it is right now.

    • 2patricias profile image

      2patricias 8 years ago from Sussex by the Sea

      This is an excellent plan, and should be 'do-able' by most people. One way to reduce credit card spending is to work out how much you really need to spend on food, and then take that amount of cash plus a tiny bit more to the supermarket. Makes you think hard about what you put in the basket.

    • hypnodude profile image

      Andrea 8 years ago from Italy

      Sound advices Ivorwen, especially point n. 9. Very well organized. Rated up.

    • Ivorwen profile image

      Ivorwen 8 years ago from Hither and Yonder

      Thank you for stopping by Vladimir.

    • Vladimir Uhri profile image

      Vladimir Uhri 8 years ago from HubPages, FB


      Financial freedom is needed for everyone who struggle.

    • Ivorwen profile image

      Ivorwen 8 years ago from Hither and Yonder

      Thank you Green Lotus.

      I just started using Quicken, and have found it very useful, in fact, I set up one account, just with our budgeted information, so that categories could be easily changed, when there was a change in circumstances. My husband really likes how it is laid out, as it makes sense to him, and there are graphs to help visualize the expenses.

    • Green Lotus profile image

      Hillary 8 years ago from Atlanta, GA

      Great advice ivorwren and so well presented. You are right in saying "you need to know what you spend". I agree, it's the prime "jumping off point so to speak! If you use a simple program like Quicken and enter your expenses daily or weekly, you'll get a good picture of how you spend and tax computations will also be at your fingertips.