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While it is better than spending more than what you have – living within your means will make you poor.
Just getting by will not put you in position to widen the gap between your income and spending. And for every month that goes by where your income = expenses, you will limit your future freedom.
That is what our family was doing the past year – living within our means. But now it is time for a change.
Revisiting Our Budget
I have spent about 3 to 4 hours over the past week going back and assigning a category to all of our income and expenses for 2016.
We are doing this in order to get prepared for 2017, where we plan to track every dollar spent in our household. It is time for our family to really focus on budgeting.
To be honest, I really don’t like budgeting all that much. The thought of tracking every single penny being spent and earned just seems like overkill to me.
But … our spending (and lack of saving to invest) has gotten a little out of control this year.
You see, we are not going to hit our dividend income goals for 2016. We set a lofty goal to earn $2,500 in dividends this year. It is looking like we may hit $2,000.
A big reason why we are coming up short is that we just aren’t able to invest new money. We are still in the building phase of our dividend income portfolio and really need to be investing.
We just have not focused on hitting our budget every month like we should have. And as a result … don’t have the extra cash to invest.
Living Within Your Means Is Not Good Enough
I would say our family lives within their means. Maybe a little below. There are some months we go over our budget, while others we come in under.
With the exception of our grocery spending, we really don’t worry all that much about what we spend. Unfortunately, this has bitten us a couple of times with late fees, etc. It has also prevented us from saving (and investing) what we had planned on.
So while we make our current income work for us and don’t live above our means – breaking even just doesn’t work.
Living within our means (where income = expenses) just isn’t good enough anymore. That is why we are setting a goal to save at least 20% of our income next year.
Save 20% of Our Income – Now & Then
Before we get too far into the details … I wanted to point out that we set similar goals earlier this year. Our goal at the beginning of the year was to actually invest 20% of our gross income – which was about $1,667 a month!
Unfortunately, life got in the way … and we got lazy tracking our budget. I also think we blindly just set that goal without looking closely at our budget – which didn’t help.
So now we are ready for another reset. This time, with hopefully a more manageable goal and steps in place to make sure we hit it this time.
Goal – Save $1,080 Per Month
The new year always seems to be the perfect time to start new goals. Well this year, we are getting serious about saving at least 20% of our income.
We plan to take the next 2.5 months to figure out our budget. By leveraging our Personal Capital account, we can go back and track all of our spending for 2016. That will help give us an idea of where we need to start making changes to our spending.
Not only did I sort through all of our expenses, I also looked at our income for the entire year. For the most part, our income does not vary that much from month to month.
Almost all of it comes from my full-time job, which I rounded down to $5,400 a month. This is actual take home pay after insurance, other benefits, taxes, parking for my job, etc.
I also have 6% of my gross pay being deducted into a retirement account at work. The figures below do not take that money into account. I am just looking at take home pay at this point.
Estimated Monthly Income (After Tax) – $5,400
20% Saving = $1,080
So based on our monthly income, our goal for 2017 is to save at least $1,080 per month. It will take some wiggling of the budget, but I think we can do it.
Of course, our goal earlier in the year would have been much better. About $600 more a month. But for now, I am not sure that is possible until we make some serious changes.
It is time to make some changes to how our family spends money. Overall, we live within our means which has worked out okay for us in the past.
But as we work towards financial independence … that just doesn’t cut it anymore.
We need to make drastic changes and start living below (well below) our means in order to save a lot more of our income. This extra savings can then be used to buy income producing assets like stocks and hopefully real estate.
The first step we are taking is reviewing our spending for the past year and then coming up with a manageable budget for the new year. As time goes by, we can hopefully make additional cuts to our spending to increase our investment dollars even more.
How do you budget? Have you found that unless you really keep to your budget, your financial goals can be compromised?