I’m never going to win the lottery and, unless my parents have managed to conceal the fact we were incredibly wealthy but incredibly frugal, I’m not going to inherit a vast family fortune either.
Chances are neither will you.
The fact is that any financial security achieved by most people – the wealthy, the not-so-wealthy and everyone in between – will be the result of strict financial discipline and sound decision making.
It’s cliché and probably fairly obvious but it always bears repeating: live within your means.
“When you make $200,000 and you live like you're making $250,000, that’s an issue. If you're making $50,000 and live like you're making $75,000, that's an issue,” says Grant Maddigan, founder of Newfoundland’s Financial Literacy for Youth.
“But if you're making $50,000 and you're living like it's $40,000, you can still have a pretty good life, it's just that you're less likely to go into debt.”
Maddigan, and most any other financial consultant, will tell you that the best place to start is by creating a budget and sticking to it.
You need to know precisely how much money is coming in, how much money is going out and determine whether you’re getting good value for your dollar.
That doesn’t necessarily mean making huge sacrifices and cutting out all the fun stuff but it does require a commitment to spending less than what one is making and doing one of two things with any excess: saving it or paying down any existing debt.
“People will ask me, 'Grant, I've got debt, this is the interest on it, but I want to invest.' I tell them to pay off their debt. Your debt is at 10 per cent interest, so in order for you to make money on an investment you have to earn at least 10 per cent, so, pay off your debt first because your return is your interest rate.”
If you’re one of those people convinced that they are already leveraged to the max between monthly bills and debt repayment, consider looking at other ways where you can trim expenses and stretch your dollars.
Instead of blindly renewing an automotive insurance policy, call around for quotes from competitors.
Work with your internet, cable and cellular service providers — for most they’re one and the same — to see if there’s a way you can shave a few bucks every month.
Instead of dropping $10 at the food truck every day, brownbag it.
Tired of paying debit transaction fees? Carry cash.
Little changes can make a big impact in the long run.
“It's easier to decrease expenses than it is to increase income, in most cases,” says Maddigan.
One popular budgeting method is the 50-20-30 rule, which breaks spending into three categories.
• No more than 50 per cent of your income should go towards living expenses (rent/mortgage, ulitilies, transportation, food, etc.)
• No more than 20 per cent towards building financial security (savings, investments, debt-reduction, etc.)
• No more than 30 per cent for discretionary spending (movies, travel, entertainment, etc.)
As a simple financial tool, it’s a great jumping off point for someone who questions their own financial acumen and it also allows for flexibility within those figures once you reach a degree of comfort.
Possibly the best advice about living within your means is to focus on your own life and your own means. Don’t get caught up trying to keep up with the Joneses because chances are, they’re already living beyond theirs.
