Youve probably heard the phrase, "living within your means." But what does it really mean?
Simply put, if youre living within your means, you can pay for the things you need without getting trapped in more debt than you can handle.
However, many of us believe that the only way to have nice things is to go into debt to get them. While that may be true for some large purchases such as a house or car, it doesn't have to apply to the other things we need in life.
For example, when you buy a house, you take out a mortgage, and you may be in debt for as long as 30 years. Thats a long time, but this type of debt comes with benefits. The interest you pay on the loan may be deducted from your taxable income, and the equityor money you have in the homemay be used for future loans. Making regular mortgage payments also helps you build a strong credit rating.
However, buying food, clothes, toys, furniture and other items on credit is different. By doing this, you may be going into debt to buy nonessential things. Plus, the interest charged is not tax-deductible, so by the time youve paid for the item and all the interest, the cost is much higher than the original price.
Simply put, you're robbing yourselfand your future. Instead of funding your dreams and the life you deserve to live, your hard-earned money fills the lenders pockets. Wouldnt it be better if the money you pay in interest could go into a savings account to help you reach your goals? Paying for everyday items by going into debt limits your choices because youre constantly caught paying for yesterday instead of moving toward tomorrow.
It can be challenging at first, but try to live within your means. Even better, try to live below your means.
Managing Your Money: Living Within Your Means