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Seven Ways to Stop Living Beyond Your Means

Are you spending more than you can afford? Are you failing to save even a portion of your paycheck? Are your bills spiraling out of control? If you answered yes to any of these questions, chances are you're living beyond your means-and you are not alone.

According to the U.S. Bureau of Economic Analysis, millions of Americans are in over their heads financially. Although U.S. consumers saved approximately 10 percent of their income in the mid-1990s, by 2006 personal savings rates had hit the lowest levels since the Great Depression.

While savings rates have increased somewhat due to the current recession, many people are still living a lifestyle they can't afford-a particularly risky strategy during these volatile economic times. How can you break the cycle and get back on track? Read on to uncover seven ways to stop living beyond your means.

  1. Pay down your debt. The first step toward getting on firmer financial footing is to pay what you owe as quickly as possible. If you're paying only the minimum on your credit cards each month, try to make larger payments. However, if you can't afford to pay more, you might want to consider debt relief services, which can include credit counseling, debt consolidation, or other options. What's more, these services may help you manage not only credit card debt, but also a range of other debt types, such as medical bills, legal fees, and student loans. To learn about these services, visit our Debt Relief Plans and be sure to check out our Debt Relief: Myth vs. Reality article for more information.
  2. Start saving. All too often, consumers believe they can afford a certain lifestyle, but they haven't taken into account the amount they need to save. According to experts, most Americans should be stashing away at least 10 to 15 percent of their income for retirement (to get a more accurate assessment of exactly how much you need to save, check out our Retirement and Estate Planning Guide). In addition, they should have an emergency savings fund that would cover six to nine months of living expenses in the case of a layoff, medical crisis, or other unforeseen hardship. To find out more about your emergency financial preparedness, take our "Are You Prepared for a Financial Emergency?" quiz.
  3. Cut your housing costs. If you're spending more than 28 percent of your gross monthly income on housing, it's a red flag that you're living beyond your means, which could put you at risk for foreclosure. If this sounds familiar, you may want to consider moving to a more affordable home or refinancing your mortgage to a lower fixed rate. If your home has decreased in value over the past year, have it revaluated by a tax assessor. To determine how much house you can really afford, use our Home Financing Calculators. In addition, look for opportunities to downsize in other areas, such as utilities, personal care, and communications.
  4. Choose cash over credit. Credit cards have become so ubiquitous that it might seem like you can't function in the world without them. But according to several studies, shoppers who rely on plastic rarely know how much they spend until their statement arrives. On the other hand, those who pay in cash are more aware of their spending and less likely to make impulse purchases. To start breaking the credit cycle, plan to pay for everything in cash or with checks, and get a pre-paid credit card to use in case of emergencies. For more tips and advice, check out our Guide to Living Without Credit Cards.
  5. Put a stop to emotional spending. Maybe it's a pressure to keep up with the Joneses or the feeling of euphoria you get when you're on a shopping spree, but either way, "retail therapy" adds up-and all too often, it leads to financial disaster. Are your emotions causing you to spend more than you should? To find out, start paying close attention to the way you feel when you shop, and take our "Are you an Emotional Spender?" quiz. If you feel that you may be at risk, try to avoid situations that trigger these behaviors, and consider speaking with a therapist or other health professional.
  6. Stick to a budget. If you're currently living beyond your means, a detailed budget can help you get back on track. Keep in mind that while you may think you can keep a tally in your head, it's important to have a written budget so you can keep close track of all your expenditures. Invest in an inexpensive pocket calculator and a portable journal so you can keep a running tab anytime you happen to spend, and check out our Budget Planner-an easy-to-use tool that enables you to crunch your numbers in a just a few clicks.
  7. Become a savvy shopper. Oftentimes, people can stop living beyond their means by learning how to bargain hunt, compare prices, and make some simple substitutions. For example, clipping coupons, choosing generic instead of name brands, and buying in bulk could save you hundreds or even thousands of dollars a year. Meanwhile, you can also stretch your dollar by taking a brown-bag lunch to work, carpooling, and seeking out free events, rather than taking pricey vacations. Visit our Guide to Shopping Wisely and Ways to Stretch a Dollar for more tips.

Remember that while living beyond your means is fairly common, it's also a dangerous trend that could put you at risk for serious debt, foreclosure, or bankruptcy. You may be unaware of how much you spend, or you may simply be letting instant gratification interfere with your long-term goals. Either way, by making smarter choices, you can learn to live within your means and start saving for the future. Be sure to visit our Money Management center and our Tip Jar for more strategies and expert advice.

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