Get Financially Fit!

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I’m living so far beyond my income that we may almost be said to be living apart.

- e.e. cummings

Often the most difficult part of climbing a mountain is near the top.  Take Mt Everest for example.  Between the south summit and the true summit is a steep ridge called the Hillary Step.  The challenges include the need to use ropes, exposure to jet stream winds, and high elevation.  In contrast to mountain climbing, the most difficult challenge in the personal finance journey is typically near the beginning.  This challenge is living within your means. 

Photo Credit:US National Oceanic and Atmospheric Administration 

The definition of living within your means is spending less than you make every month.  Living within your means is the most important personal challenge that you can take on.  Once you live within your means, you can accomplish other personal finance goals such as paying off debt, saving for a large purchases, and saving for retirement.Today I’m going to touch on the following points, 1) pay as you go, 2) save up for large purchases, and 3) only use credit cards with discipline.
   
Pay as you go

The immediate gratification message that society teaches us is Play today and pay later. There has been a steady progression toward more borrowing. Not too long ago that one had to pay fully for an automobile. Today it’s quite common for people to finance cars with no money down. In order to live within your means you need to pay as you go. If you can’t pay for something today, then choose to delay gratification.

Save up for large purchases

I challenge you to save up and pay for all purchases with an exception allowed for your home mortgage. Always save up to purchase luxury items such as a television, a couch, a vacation, a boat, a motor home, etc.  When you avoid loan payments you decrease your stress and increase your ability to build wealth.  Next time you buy a car, save up and pay cash.  Save by setting aside the amount of your car payment after your current car is paid for.  In time you can transition from buying reliable used cars to new cars that you can drive for many years.

 
Only use credit cards with displine

Credit cards can prevent you from living within your means for several reasons. First the connection between purchasing and the paying is disconnected. When we charge a purchase, the pain of paying for the item is delayed to a future time. Secondly, it is widely known that people spend more when they purchase with credit cards. For example we are more likely to increase our consumption by going to a nicer restaurant or a buying higher-level product. Thirdly, interest payments from credit card balances take money from you every month. If you have credit card balances, I recommend that you send your credit cards on a sabbatical - take them out of your wallet or purse and put them away in a safe place. Pay for all of your purchases with cash, checks, and debit cards. Adopt the practice of Pay as you go as opposed to play today and pay later. I think it’s fine for people to use credit cards with discipline to take advantage of incentive programs. Spend purposely and pay off the amount due every month. My wife and I currently get back 5% of my purchases toward gasoline. In our case we not only get money back but by using a dedicated card we can track our spending on gasoline.
Follow your dreams, Achieve your goal!