Living Within Your Means
Practical Preparation for Uncertain Times

History is full of periods of boom and bust because people, groups, and societies take chances; they gamble their financial security; and they stretch beyond their means with a hope of coming out on top, many times with regrettable consequences. We may be experiencing that now with the poor economic conditions of the past couple of years after more prosperous times earlier in the decade. The current state of affairs seems to be slowly improving, but Charlie Blaine with MSN Money cautions that we are not there yet. He notes that even though the stock market has improved from its record low of a year ago, the housing market continues to stagnate at its low point while the lack of job growth and unemployment remain close to record highs.

With that in mind, our last employee newsletter focused on expanding your skills to increase your value in the workplace. That article wisely noted that such an approach might be good job protection. But how well have you protected yourself otherwise? For example, what if you suffer an economic reversal, loss of income, or a financial rainy day? Are you prepared to weather such storms? Would you be able to maintain your standard of living? If you answered no to either question, then now is the time reevaluate what you’re doing so that you are better prepared for those unexpected times. A key place to start is to live within your means.

Living within your means has a lot to do with your financial situation. If you are spending less than or equal to what you are earning, you are probably living within your means; however, if you are spending more than what you earn or can afford, you are beyond your means and should consider some changes. Walter Updegrave, Senior Editor at Money Magazine refers to it as “leading a financially responsible life.”

Savings
An important aspect of being financially responsible is to maintain some type of savings. Whether you are well off or are living paycheck to paycheck, do you have enough money saved to meet your most basic financial obligations during difficult times? Any amount of savings is better than no savings, but a good rule of thumb is to have enough money saved to cover at least 3 months of expenses. Here are a few tips to increase your savings:

• Set up electronic or automatic transfer from your paychecks to savings. This is the easiest, most efficient way to grow your savings. If you wait to do the transfer manually, it likely won’t happen.



• Talk to your bank or financial institution about the various account options they provide. Most accounts will earn interest, but at different levels and under different conditions. Set up an interest bearing account that earns the most interest and still meets your needs. Interest is an effortless way to increase your savings balance.



• Cut back on your expenses and put the difference into savings. See the following section for ideas on what you can change.



• Put yourself on a budget and stick to it. Budgeting requires discipline but also reaps financial rewards that can be put into savings.



• Save your income tax refund instead of spending it.



• Clean out the garage or basement and have a yard sale with your and unwanted items. Put your earnings into savings.

What can you change?
To take more responsibility for your finances, begin by evaluating needs and wants and then look at where you are spending your money. Paying for your mortgage or rent, utilities, groceries, and car expenses are probably all needs, while vacations, eating out, shopping sprees, and many entertainment expenses are probably all wants. But be careful. Even your needs may be costing you more than they should. Consider a few examples of what you can change:

• Is the cost of food eating you out of money?



• Eating Out: How often do you go to a restaurant? If you eat out for lunch everyday, try packing a lunch instead. Or, if you take the family to the local eatery every Friday night, try going twice a month. Cutting back here can quickly put more money in your pocket.



• Eating at Home: Is your pantry and fridge full of name brands? Consider buying store brands that typically cost less. The quality and taste are usually on par with name brands, and in many instances store brands and name brands are produced at the same facility and only receive different packaging. Also, look for sales and use coupons to increase your savings.



• Are you on entertainment overload?



• How many TV channels do you really need? If you’re paying the satellite or cable provider for several hundred channels when you only ever watch a dozen programs, switch to a smaller channel package, or talk to your provider about options for custom channel packages. Or, if you mostly watch the national networks or local programming, drop the satellite or cable provider and get the free signal from an antenna.



• Do you have ultra fast, super high speed Internet just for social networking, blogging, and email? A slower, less costly connection speed will usually meet your needs just as well as the faster one. Also, talk to your Internet provider about other available services they provide. Discounts are usually offered when you bundle Internet together with other services such as phone or TV.



• Do you have to see all the new movies, and on opening weekend? This can be quite costly, especially if you stop by the snack counter. Try going to a matinee, or wait until the movie goes to the cheap seats or rental stores, and avoid the snack counter!



• What about the car, truck or SUV in your garage? Premium models and brands cost more to insure and maintain than something similar with less features. There are a lot of vehicle options out there for all needs and desires. Many entry level and “regular” vehicles now have standard features that were only available in more upscale models a few years ago. Look for a vehicle that meets your needs and then consider how many additional options and features you can afford. Also, follow the appropriate guidelines for tire pressure, oil changes, and fuel ratings to keep long term maintenance and repair costs in check.



• Are you drowning in debt to live in a larger, more comfortable home than you need? Besides just the mortgage or rent on such a home, larger homes cost more to heat, cool, and maintain; likewise with larger yards and properties. Downsizing would save on all those expenses. If you can’t downsize right now, look at where you can make changes such as readjusting the thermostat, turning off unnecessary lights and appliances, and trim and water the lawn less often.

Payday Loans and Advances
Payday loans and advances may be necessary on occasion during unexpected circumstances; however, consistent use of these programs is a good indicator that you may be living beyond your means. Caution must be taken because payday loan stores usually have high interest rates that can quickly plunge you into debt, and many options for paycheck advances carry fees that can quickly add up. Neither are good long-term financial solutions. For example, the following table illustrates the differences between a standard bi-weekly paycheck and one with a $500 advance:

As can be seen in the table, a paycheck advance yields a smaller take home pay, which makes budgeting and financial planning more difficult even with the $500 received early. Using this same example, consider the financial effect of a consistent $500 advance for 6 paychecks:

After 6 paychecks, you have advanced $3000 of income, but have lost $300 in the process to fees. Financial responsibility means careful use of advances and payday loans.

RMI recognizes that emergencies happen and therefore provides an option for paycheck advances through ASAP Advantage; however, this program is not a substitute for sound financial practices, and as such, consistent use of advances is discouraged. For more information about this program, please visit www.asapadvantage.com.

Other Options
Consider how well you would be within your means if you didn’t have to spend your money or savings in the first place. A great way to comfortably stay within your means is by becoming more self-sufficient. Self-sufficiency can sound intimidating, but there are a variety of simple options to get you started:

• Grow a garden. Growing a garden gives you fresh produce for pennies compared to the cost of buying similar produce in the store.



• Maintain food storage. Stock up on food items when the sales are good and then if times get tough, supplement your regular groceries with food storage to keep the grocery bill low.



• If possible, and when it makes sense, reuse or repair worn out and broken items instead of buying new.



• Avoid excessive debt. It may be necessary to incur debt for a home, education, or car, but many other items are unnecessarily financed and bought on credit. Debt is unforgiving and ties up money that could be used for other things. A disciplined approach to debt is an important step to becoming self-sufficient.



• When possible, walk or ride a bike instead of driving to save on fuel costs.



• Keep an eye on emerging technologies to save on energy costs. Solar panels, wind turbines, electric vehicles, and energy efficient appliances are all becoming more prevalent. As these technologies continue to become more efficient and popular, the costs will drop making them increasingly available to the general public.

If hard economic times become a reality for you, having lived within your means could be the difference between a manageable financial adjustment to a life-altering financial disaster. By being financially responsible now, you can be adequately prepared for the uncertain times ahead. For additional resources on this topic, please contact your RMI HR Representative.