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Five Tips for Living Below Your Means (and What to Do with the Extra Cash)
You can save more and live on less now to build a brighter financial future
By Jean Chatzky* In my book “Money Rules, The Simple Path To Lifelong Security,” I make a case for consistently spending less than you make. It’s Money Rule No. 10: Live below your means.
And no, I’m afraid that does not mean living on what you make. You don’t want to tread water for the rest of your life, living paycheck to paycheck. What you really want is to glide through the pool like Michael Phelps in a 100-meter relay. Becoming a champion saver, if you’ll pardon the pun, means developing ways to consistently, month after month and year after year, live on less money than you bring in so you can save more for the future.
That may also mean finding other ways to earn more, whether that’s getting up the gumption to ask for a raise or promotion, taking a side-job and/or going back to school for training in a field that pays more than your current career.
Here are some strategies for successfully living below your means to help realize your financial goals:
Track your spending, then create a budget
If you don’t have a budget, now’s the time to create a monthly spending plan so you can figure out exactly where your hard-earned cash is going every month. To do this, gather your most recent bank statements and credit card bills and really dig in. Look at how much you have coming in and how much you have going out. Don’t forget to count other income such as rental property or any other side hustle.
Once you see how much you have to work with, look for places to cut spending. If you’re not currently tracking your spending, you can do it old school with pencil and paper, but there are also a number of apps that can help.
Live in a smaller house than you can afford
In other words, just because you are approved for a $500,000 mortgage, doesn’t mean you should spend that much on a house. Same goes for apartment rent. One rule of thumb is for your housing costs to be 35% (or less) of your monthly gross income. That 35% should include the cost of insurance and upkeep.
Those who spend a great deal more than 35% of their income on housing may want to consider refinancing if you own, moving to a more affordable location or downsizing to a smaller home. Another benefit of living in less space is that utility bills and home maintenance costs tend to decrease accordingly.
Keep your new-to-you car a few years longer
Some people never buy a new car, instead purchasing one that’s one or two years old (and still under warranty) to save thousands off the original sticker price. And once they have a new-to-them vehicle, they drive it for a few years after it has been paid off, saving on car payments.
Only buy things on sale
From groceries to electronics to new clothes, never pay full price for things if you can help it. That means when you are at the market, and you are in the mood for steak but the pork chops are on sale, pick the pork. Every time. You can also make shopping supermarket sales more of a game to see how much you can save weekly or monthly on your food bill by simply choosing sale items over those that aren’t discounted.
Save your raises
When you receive a raise or cost of living increase, immediately move that additional money into savings or retirement account. Make it easy on yourself and set up a weekly or monthly electronic transfer for a few days after you are paid. If you can’t move the entire amount of the raise each month, consider taking a portion of the raise and stashing it into savings. Even small amounts add up over time.
*This guest article is from the “Your Money Blog” in Mid Oregon’s Digital Banking Credit Savvy resource. It is made possible by Savvy Money. “Five Tips for Living Below Your Means” (and What to Do with the Extra Cash)” by Jean Chatzky with Casandra Andrews was published in May 2021.
Your Top Five Credit Questions Answered
By Jean Chatzky* When it comes to building and maintaining good credit, the best path isn’t always obvious.
A new survey from U.S. News & World Report shows that nearly one-third of Americans surveyed were unclear about exactly what factors have an impact on their credit score. It’s no wonder with a lack of financial literacy courses available to most school-age students in the U.S.
While some people may not realize it, a good (or excellent) credit score gives you the best chance of applying for and receiving low interest rates on big-ticket purchases such as mortgages and car loans as well as on the credit cards you use for everyday purchases. Your credit also plays a role in whether you qualify to rent an apartment and what you pay for homeowners and auto insurance.
Here are some frequently asked questions about credit with answers to help you make better informed financial decisions.
What’s a credit utilization ratio and the ideal range?
Many people don’t realize that using too much of your available credit can have a negative impact on your credit. That’s where your credit utilization ratio comes in. Essentially, it’s the percentage of available credit that you’re using at any given time. To keep your credit score up, aim to use at most only 10% to 30% of the credit you have available at any time. To do that, carefully monitor how much you spend each month and if you have a heavy spending month, pay your bill before it’s due to bring the ratio down and keep yourself in range.
Will carrying a zero balance on my credit card help build credit?
If you haven’t used your credit card in a six-month period, it could be considered inactive and your issuer could cancel the account. This will unfortunately have a negative impact on your credit score. The reason? That goes back to your utilization ratio. If you have a small amount of debt and a lot of available credit, that means you have a low utilization ratio, which is good. When your credit card issuer closes your account because of inactivity, it decreases your available credit, and dings your credit score.
The solution? To keep your cards active, use them once a month or so, then pay off the balance on or before the due date. Another easy way to keep a credit card account active is to place a monthly automatic charge on the card. Then, pay that credit card itself via an automatic payment. You’ll never be late!
Should I close credit card accounts I don’t use anymore?
Not necessarily. Why? It goes back to that utilization ratio. When you close an account, you lose that line of credit. That tends to automatically increase your utilization ratio which — depending on where it is to begin with, can hurt your score. If you want to switch cards to avoid an annual fee, one option is to replace the line of credit with another card that doesn’t charge fees. You can also ask your credit card issuer (nicely) to switch you to another card with no fee. The alternative? If you do close a card, pay down some debt to keep your utilization ratio in the clear. One more thing to consider if you’re thinking of closing a card is your credit age, closing your oldest card could impact that factor as well.
How can I improve a low credit score?
First: pay your bills on time every time. If you’re having trouble qualifying for a regular credit card (or in the process of rebuilding your credit), consider applying for a secured card. With this type of card, you deposit a sum of money (typically a few hundred dollars). That becomes your collateral to secure your credit. Then you go about using the card and paying the bills. That habitual behavior will help you improve your credit. Check with your credit union or bank to see what secured card options they offer.
How long will it take to see improvement in a low credit score?
Those who keep credit card balances low — at 30% of the credit line or less — and making timely payments for at least six months in a row, should start to see an improvement in their credit scores. Don’t be discouraged if it takes a bit longer, though. Think of this as a marathon, not a sprint.
*This guest article is from the “Your Money Blog” in Mid Oregon’s Digital Banking Credit Savvy resource. It is made possible by Savvy Money. “Your Top Five Credit Questions Answered” by Jean Chatzky with Casandra Andrews was published in May 2021.
Go Paperless With Mid Oregon eStatements
Looking for ways to declutter and simplify your financial life? One easy way is to reduce the amount of paper you receive in the mail. If you find that you’re leaving your Mid Oregon statements sitting on your counter, unopened, consider trying eStatements instead!
How to opt in to Mid Oregon eStatements
You can opt in/out of Mid Oregon eStatements with just a few clicks:
- Log into your account on Digital Banking using your desktop computer or the mobile app on your phone or tablet.
- Click on the eStatement widget at the left hand side of your screen (bottom toolbar on mobile). If you can’t find eStatements, click the more…. button to reveal any hidden widgets
- Tap the “gear” icon at the right of the Statements and Notices header and select the button to switch from “Paper” to “Online”
Benefits of eStatements and eNotices
When you choose eStatements, you’ll also have access to your tax statements and other Mid Oregon notices electronically (certificate renewal letters, overdraft notices, etc.). Your documents are easy to find, download and print anytime you need them, just by logging into Digital Banking. Because they’re stored securely, you never have to worry about them getting into the wrong hands. Plus, you’ll always have 24 months of statements right at your fingertips!
Tackle the paper, reduce waste
With eStatements, you won’t need to dig through files, or try to keep up with shredding your outdated financial documents! Plus, you’ll receive your statements a day or two earlier than you would if you receive them by mail. And no more worries about important personal data being intercepted in the mail stream.