How to live well on a budget

The perks to an expensive lifestyle are obvious. Money buys many pleasures. However, the benefit of goods, experiences and self-care can be readily undone by the stresses of poorly balanced finances. Here’s how to find a financial balance to your expensive lifestyle.

Take stock

You need to start with a reality-based look at your finances. This means getting the facts straight on money coming in and money going out. Income could be from investments or work. Assets are great, but unless they’re liquid (can be converted to cash), they don’t play a significant part in this exercise.

Money going out is expenses and debt. You need to examine your records for at least a year to get an accurate sense of your true expenses. Birthdays, holidays and annual expenses need to be included in your tally of expenses, not just day-to-day costs. Don’t forget interest and fees – debt involves more than just the initial sum. If possible, look back more than a year to get a fully accurate and reality-based look at your outgoing funds.

Tally your lists on an annual and monthly basis. How much is coming in and how much is going out?

Come up with a plan

Chances are you enjoy your lifestyle and aren’t motivated to lose its benefits, but a reality-based look at your financial situation should help you recognise where and to what degree changes are needed. If your income outweighs expenses and debt, then you’re living within your means and you don’t need to change anything, unless there are goals for the future that you aren’t on track for and want to achieve.

However, for many, particularly those living an expensive lifestyle, the reverse is true. Debt and expenses outweigh income, and something needs to be done. Your plan of action needs to be incremental and achievable, so no winning the lottery, please. It can involve increases to income, repayment of debts and/or expense reduction. Everyone will have a slightly different balance between these elements, but strike a balance you must.

Source funds

You probably want to look at increasing income before facing changes to your lifestyle. There are a few ways to go about this. You can approach your employer about a raise or bonus, or start a side business to raise funds. You can repay loans, which means a decrease in funds available in the immediate future but a better outcome over the long term because you eliminate interest payments.

Other sources of funds exist. You might pursue debt consolidation and professional advice, grants or more favourable loan terms, or lost monies. Financial institutions do make mistakes, and sometimes there may be charges paid that shouldn’t have been. You can use a PPI calculator to see if you were mistakenly charged for payment protection insurance, a common source of misallocated funds. Also, go over your accounts and charges to make sure that they are all yours. You can also sell material goods to raise funds.

Defer gratification

Of course, for some, the only possible path forward is to reduce expenses. There are a few approaches here. You probably don’t want to sacrifice your lifestyle to get your financial affairs in order, but you need to do something or your situation will only get worse.

There are a few possible approaches. As noted above, selling goods to raise funds is one option. Consider implementing a “one in, one out” policy for expenses. For every new good you bring in, sell a different one. Be cautious with this approach, as while it can help bring balance, in most cases you still have a situation of more outgoing funds than incoming.

You can set a schedule or budget for yourself and choose more strategically where and when you will spend on your lifestyle. This may involve sacrificing some things in order to keep others. If travel is a high priority, then you might choose to spend less at home. If fashion is important to you, then you might choose to curb your entertainment budget. Others prefer to set total budget limits by a period of time instead of by category, or plan “no shopping” days to cut expenses. Still others impose temporary austerity measures on themselves and curb all lifestyle and discretionary spending for a period of time in order to regain their financial balance and enjoy the ability to spend more freely in the future.

Finding a financial balance to an expensive lifestyle is a challenge, but one it’s best not to ignore. Take a realistic look at your current financial situation and come up with an achievable plan to bring in more money or curb expenses and bring balance to your life.