Live Within Your Means

If your spending regularly exceeds your income, you will be accumulating increasing levels of debt. This is an easy and common pattern to fall into, and one that requires some planning and discipline to reverse. The first step is creating a budget. As unpleasant as this may sound, creating a budget is nothing more than examining your income and expenditures in order to determine exactly how much money you have coming in and where you are spending that money. Once you have got a clear understanding of your current budget, your challenge is to find places where you can spend less (or earn more) in order to achieve your financial goals. Here are some steps you can take toward that end:

1. Question Your Needs And Wants
   What do you want? What do you really need? Evaluate your current financial situation. Take a look at the big picture. Make two lists - one for needs and one for wants. As you make the list, ask yourself:
   • Why do I want it?
   • How would things be different if I had it?
   • What other things would change if I had it? (for better or worse)
   • Which things are truly important to me?
   • Does this match my values?
2. Set Guidelines
   We all have different budgets based on our needs and wants. But the Building a Budget chart below shows some guidelines on how much should go toward different expenses. You may need to make adjustments for a daily latte fix or entertainment, but remember to subtract amounts from other areas if you do.
3. Track, Trim And Target
   Once you start tracking, you may be surprised to find you spend thousands of dollars a month on eating out or other flexible expenses. Some of these are easily trimmed. Cutting back is usually a better place to start than completely cutting out. Be realistic. It will help you to be better prepared for unexpected costs.

The SMART Way to Trim Expenses
In finding ways to trim flexible expenses, it helps to have a goal to save toward each month. Setting such a goal needs to be SMART:

SPECIFIC – Smart goals are specific enough to suggest action. Example: Save enough to visit Rome for your wedding anniversary. Not just "save money".

MEASURABLE – You need to know when you can achieve your goal or how close you are. Example: A travel trip costs HK$2,000, and you have HK$800 saved.

ATTAINABLE – The steps toward reaching your goal need to be reasonable and possible. Example: I know I can save enough money each week to purchase that trip to Italy.

RELEVANT – The goal needs to make sense. You do not want to work toward a goal that does not fit your need. Example: We would like to stay in four-star hotels in celebration of our anniversary.

TIME-RELATED – Set a definite target date. Example: I want to go to Italy by next summer.

This chart shows some rough guidelines on how much of your income should go toward different expenses. If you live in an area where transportation cost is higher than normal or rents/mortgage are higher, you may need to make adjustments. Also, if you would like to add a section for gifts, or something else, then you will need to subtract from another area.