For some people, their income allows them to live as high as they wish, with no regard for expenses. Or they come from a wealthy family with no budget concerns. Unfortunately, the fact is, not a lot of people have a large income or come from a wealthy family. We can count the number of wealthy families, but we can’t count the average family that lives paycheck to paycheck. Based on the latest data from CNBC, “61 percent of Americans live paycheck to paycheck.”
Reported from CNBC, following the article by Megan DeMatteo, “The average American has $90,460 of debt—but the average net worth is more than that. Knowing your net worth can help you decide if your debt load is manageable or not.”
“CNBC Select reviews the average net worth by age based on Federal Reserve data.”
In this graphic, we can see that our income is lower than our net worth. That means, we all have net worth that is always higher than our income, but it doesn’t mean that we can live as our net worth. We want to be specific. If we all live as our net worth, we all will be covered with debt.
Live within your budget. For example, if your income is allowing you to have two fancy cars, just buy one, even though you can afford to buy two. Why? With the extra money you have for the second fancy car, you can invest it to grow or to save for your rainy day. Always budget your expenses and don’t use all of your income if you don’t need to.
Living within your budget is essential for several reasons:
- Avoiding Debt: Spending more than you earn will inevitably lead to being in debt. Over time, this can snowball into a significant amount, especially when you factor in interest rates and fees. Debt can become a burdensome chain, limiting your future financial opportunities and choices.
- Financial Security: Having savings and avoiding debt means you’re in a better position to handle unexpected financial emergencies. Whether it’s a medical emergency, a sudden job loss, or a major home repair, having a cushion can make these situations less stressful.
- Reducing Stress: Financial problems are among the leading causes of stress. Living within your means and having a handle on your finances can provide peace of mind.
- Achieving Goals: Whether you want to buy a house, go on a dream vacation, retire comfortably, or send your kids to college, living within your budget allows you to save and allocate funds toward these goals.
- Building Good Habits: Budgeting and living within your means instill discipline. This discipline can translate to other areas of your life, such as time management or even diet and health choices.
- Avoiding Impulse Purchases: When you’re aware of your budget, you’re less likely to make impulse buys, which can add up over time. This doesn’t mean you can’t treat yourself, but rather you’ll make more considered decisions about those treats.
- Freedom and Flexibility: While it might seem counterintuitive, living within your budget can actually provide more freedom in the long run. By avoiding debt and building savings, you’re less tied to a particular job or lifestyle. This might allow for opportunities like traveling, starting your own business, or taking time off to pursue passions or education.
- Preparation for the Future: As you age, your financial needs might change. You might want or need to retire, and having savings and investments will be crucial. Living within your budget early on allows you to prepare for a comfortable future.
- Setting a Positive Example: If you have children or younger family members, living within your budget sets a good example for them. They’ll be more likely to adopt healthy financial habits if they see them practiced regularly.
- Peace of Mind: Knowing that you’re not overextended and that you have a plan for your money brings a sense of control and calm.
In summary, living within your budget is not just about being frugal or denying yourself pleasures. It’s about making thoughtful decisions, planning for the future, and ensuring long-term financial health and well-being.
Remember the budget for your second fancy cars? You can grow it in your deposit account, you can invest it, or you can always save it for your rainy day. Don’t forget to help or give to poor people around you as your giving back to your community.