If you find yourself looking at downsizing the budget, chances are you are experiencing some financial setbacks. Nerdwallet.com pointed out that the top three ebt paymetn sof an average household falls within a mortgage loan, student loand and credit card debt. Trying to live below your means could be because of one or a combination of the three top loan payments.
Of course there are other factors that can affect your decision to lower down your expenses. It can range from the need to pay multiple payday loans to dealing with medical emergencies. It can also stem from the need to save money to see a sick relative or even visit canck home and spend time with your family over the holidays.
There are several strategies for a frugal life that you can look into to start living below your means. But apart from knowing how to do it, it would be nice to understand how it would affect your financial life. Apart from the obvious savings that you will get, it would be nice to know what you are getting yourself into to help you manage your expectations.
Knowing what you are getting yourself into can help you prepare for it better. Take for example a mortgage loan. Apart from knowing how to apply for one and getting all the documents submitted to be approved for the loan, it would help you to prepare for the approval if someone told you that it would be one of the biggest investments you will ever make. As such, it could command the highest payment in your monthly budget.
Living below your budget
Living below the budget or for some,frugal living seems to be a hard decision to make in terms of their finances. This is because they associate the lifestyle with extreme cost-cutting measures just like living off noodles for months on end and even going into the neighbor’s trash to see if there are anything useful they can use.
It might surprise you to know that these are not characteristic of frugal living. Apart from how it can positively impact the economy, downsizing the budget brings a lot of positive change into a household. Here are some of the ways how your life can change when you decide to live below your means.
- Reordering your priorities in life. Choosing to lower down your expenses forces you out of your comfort zone and into a whole new ballgame. But do not fret because these can actually be good to you and your budget. For one, you can actually learn a new skill like cooking in your hopes of cutting down on restaurant meals and ordering take out. To lower down your transportation cost, you can turn to your bike for help. This can get you to and from your school or office at a fraction of the cost when you bring your car and it keeps you healthy. You can also find that there are a lot of things you can do at home when you start passing up the chance to watch every movie out there. All these can help you shift your priorities that will benefit your finances.
- You get motivated to live your dreams. Downsizing the budget can surprisingly help you and motivate you to reach your aspirations in life. This is for the simple reason that as you lower down your expenses, there is a high probability that you get to pay off your loans and debts ahead of schedule. Your student loans, car payments and even the mortgage debt can be paid off early. This can leave you with a lot of wiggle room to pursue your dreams like starting up a business. It will be a lot of hard work but you get to follow your dreams.
- Creativity becomes a natural trait. Inventions are often the result of necessity and if you are looking to lower down costs, you are forced to look for alternatives. Take for example a bonding moment with you and your son. It might have been a lot easier to just go to the mall, buy ice cream and a toy and that is it. But trying to live below your means will force you to think of other activities with your son. You might want to set up the tent at the backyard and fire up a mini grill to toast marshmallows. Your son would have a wonderful time and could remember that moment forever.
- Taking care of your family. Downsizing the budget can help you address the financial needs of your family. From bills and loan payments and even making sure that your children has a solid college fund that they can use for higher education. This can help them get ahead in life because they can graduate with a clean slate. As you pursue this lifestyle, your children can also take off from your example and do the same with how they deal with their finances. You have helped them with the proper way of handling their finances which can in turn rub off on their own kids. They can teach their kids with frugal lifestyle.
What to prioritize in your finances
As you find your rhythm in handling your budget, you need to make sure that you do not miss out on some of the most important aspects of your finances. Downsizing the budget does not mean that you can forget about some of the areas of your finances because you are living below your means. Here are some of the areas of your financial life that you need to keep a close eye on.
- Budget and living expenses. This should be on top of your list when talking about fiance. You need to have a budget that clearly states your income and all your expenses. This needs to have your living expense as the focal point. But do not forget about the other financial responsibilities that you need to meet.
- Emergency fund. As you earn your income and pay your loans, you need to simultaneously build up your emergency fund as well. It is best to build it as fast as you can but if this is not possible, just be sure to add on to it every time you get your salary. This is your insurance package in case you hit a snag and your income feels the impact. You have a few months of spare money to keep you out of debt and tide you over to the next salary.
- Retirement fund. If you are downsizing the budget, you might want to increase your retirement fund contribution. This is because the sooner you get to put in your retirement money, the more the interest can work on increasing that amount. The compound interest can put in more as long as you start early and add to the amount consistently.
- Pay off loans. As you get older and reach retirement age, it is best to pay off your loans because carrying them over to retirement will only eat up your funds. At most, you should only be left with the mortgage payments and you need to be at the tail end of your payments when you are reaching retirement age.
Downsizing the budget is beneficial to your finances but you need to keep track of the important areas of your budget. It does not follow that because you are living below your means, it gives you the license to forget about meeting other financial responsibilities.