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Live below your means

By Kemberley Washington ·
Monday, June 24, 2013
Posted: 1 pm ET

If your expenses are near or even above your expected income, it is time to make a firm commitment to simply live below your means.

I know this may seem impossible. But with a few lifestyle adjustments, you can achieve your goal.

Analyze your finances

For starters, begin to analyze your current financial situation. Compare your monthly expenses with your monthly income to gauge whether adjustments are necessary.

Simply determine how much each expense bites into your income. For example, if you earn $1,000 per month and pay $100 for charitable contributions, this would be 10 percent of your monthly pay.

After you determine a percentage for each expense, highlight expenses that take a huge bite of your monthly income.

Are you living in the red?

Next, determine whether you are living a lifestyle that puts you in the red. Do this by simply computing your debt-to-income ratio.

A debt-to-income ratio determines how much of your income is committed to debt, such as student loans, credit cards, mortgages, car loans and other liabilities.

Loan officers often use this ratio when determining whether to grant a loan. It also is used as a major factor in computing your credit score. Therefore, a high debt-to-income ratio could reduce your chances of obtaining a loan and also negatively impact your credit score.

The ratio is easy to compute. Simply take your total monthly debt and divide by your total gross monthly income.

Many financial institutions look for a score of 36 percent or lower when determining your financial health. But in general, the lower your ratio, the better.

Make the cut

If analyzing your finances reveals that you are not where you want to be, it is time to make cuts. Review big expenses and unnecessary debt, and cut areas that prohibit you from living below your financial means.

Although this may require some sacrifice, it can help provide you with the means to save toward a financial goal or provide necessary funds in the event of an emergency. Most importantly, you will rest easier knowing your finances are well under control.

Kemberley Washington is a certified public accountant and business professor. She writes a personal finance blog at Follow her on Twitter and on Facebook.

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Elizabeth Wright
July 30, 2013 at 11:04 am

I am living on disability, and have enough income for the way I live. I pay all my bills on time , but cannot get a real credit card because of my ex-husband using my credit and not paying for it. I have tried several times to remove theses things from my account with no luck. My rent is $1100, I own my own car and my income per month is $3800. I need a credit card to help build up my credit score.
Elizabeth Wright

Russell Cormack
July 18, 2013 at 10:44 pm

I am self-employed, I get paid cash and do not have a bank account. I usually have the persons I work for buy or supply the material needed for the job before I do it. However that makes for less income because it is hard to make some understand why I need the things I need to complete a job. I could make much more money if I could acquire the materials first and just present them with the receipt. I am a very experienced maintenance person. I do remodeling, electrical,plumbing, and can fix pretty much anything. I can bring in 25,000 a yr now but could do more if so much time was not wasted getting the materials.

Jangchup Tsering
July 18, 2013 at 7:44 pm

I need credit card
I can pay i much i use

Rhnee Grant
July 18, 2013 at 6:22 am

I am 51 years of age and live on a fixed income of $710.00 monthly it is rather hard living by these meeans. But, not complaining.