What does living within your means look like

If you're to allocate your income wisely then setting a budget that you can stick to is one method that will help you live within your means. If your budget allows for using the '50|20|30' rule then you can be considered living withing your means and are well on your way to living a Hotlifestyle.

The basic idea is to divide your income, spending 50% on needs and 30% on wants and saving the remaining 20%. The rule is flexible.

The 50|20|30 budgeting rule can be broken down as follows:

• 50% – Fixed or Essential Expenses

  50% of your total income is apportioned to fixed or essential expenses. These expenses are your main priorities, the expenses you cannot live without. They include rent or mortgage, loans, subscriptions, travel costs, insurance and phone amongst others.

  These are generally considered to be your needs as opposed to your wants.

• 20% – Financial Goals or Savings

  20% of your total income is put toward your financial goals such as savings.

  This will include the likes of an emergency fund and savings account to cover 6 months of expenses as priorities. Then you might save for a college fund or retirement fund through investments.

  If you're in debt then you may consider that paying off debt is a form of saving. In my view, you would be right. It is very likely you would be reducing the amount of money you’d be paying in interest on any debt. Putting these funds toward paying off debt would be sensible.

  I would, however, recommend building up an emergency fund of at least £1,000 first.

• 30% – Flexible Spending or Variable Expenses

  The final 30% of your income is used for flexible spending or variable expenses. These are your lifestyle expenses.

  These types of expenses vary. They include phone usage charges, groceries, gas for your car, eating out, entertainment and hobbies.

  You generally have more control over the level of spending in these areas. They are the first set of expense to cut back on when trying to make savings or find extra money.
  The 50|20|30 Rule is a Guideline

  It’s important to remember that the 50|20|30 rule is a guideline. It is intended to help you approach the management and apportionment of your finances effectively. Doing so will help position your finances for the future.

  The rule becomes powerful if you apportion your income rigidly to each tier from the top down. That is to say, 50% is applied to fixed costs as a priority, then 20% to savings or financial goals. The remaining amount, which may equate to 30% is what you live off.

  If your fixed costs are minimal you may find you don’t need to assign 50% of your income to the first segment. You can utilise this surplus toward savings or living costs. Your finances are on a good path if this is the case.

  Likewise, if you cover your costs in all three segments with ease you will have surplus funds at the end of the month. You can opt to top up your savings at the end of the month or roll it over to next month.

  The 30% variable expense should be guilt free spending money. This is because you have prioritised saving for the future in your 20% tier.

  Alternatively, particularly if you are living beyond your means, you may not have 30% left to cover variable costs.

  Whilst this is a problem, the power in this rule becomes evident at this point.

  If you are strong minded enough, prioritise the first two tiers. This ensures you are saving 20% of your income every month despite the shortfall of money coming in. Your financial goals become the priority.

  It will ensure you save for an essential emergency fund. It will help you build savings for 6 months of living expenses for the day the shit hits the fan. You’ll then be working toward your long-term financial goals. These goals could include investments or retirement funds, or some other financial goal.

  You will then need to find the extra money for your living expenses.

  In experiencing, or even suffering, a month or two of living on what is left, you’ll grasp the need to cut back on expenses, if you don’t beforehand.

  If you’re in a position where you need to find extra money fast, cost-cutting in a budget is the fastest way to do that.

  How you approach cutting back on expenses in your budget comes down to your priorities. If you are social-butterfly and love eating out then cut back on fixed expenses. Find a cheaper place to rent, for example. You may want to carpool to save on travel costs.

  If you can’t cut costs, the alternative is to raise your income, which can be harder to achieve.

5 Tipps to Help you Manage Your Money

1. Sit Down and Make A Budget

It’s a simple piece of advice, but it is also one of the most effective ways for you to keep your savings account from springing a leak. Take an afternoon out and really work on making a budget that works with your lifestyle. Then do whatever you have to do to stick with it.

2. Practice The 10-Second Rule

This is the ultimate savings hack, but every time you are about to purchase something pause for 10-seconds and really think about whether you need something. Just these 10-seconds will help cut back on the worst kind of impulse shopping.

3. Compare car insurance because there's no benefit in loyalty

Like a lot of people out there, your car insurance bill is probably one of your essentials that is taking a big bite out of your monthly budget. Wouldn’t it be nice if it was taking a smaller bite?

4. Stop Buying Your Lunch Once And For All

Spending money on a £10 salad every day may be good for your health, but it’s certainly not good for your wallet. You can make equally good salads, sandwiches, and overnight oats yourself, at home, that are just as good for your health and will be markedly better for your wallet. Think about it: £10 a day for 200 working days a year adds up a staggering £2,650 a year. That’s a massive amount of money.

5. Stop Saving Your Payment Information On E-Commerce Sites

There’s a reason e-commerce sites allow customers to save their payment information–it makes checking out easier and people are more willing to part with their money. Don’t make parting with your money easy as a rule. By not saving your payment information on e-commerce sites, and making it harder to checkout, you’ll be more likely to not buy something, and more apt to save money.