Wednesday, September 16, 2015

What Does It Mean To Live Within Your Means?

LDS congregations have been counseled numerous times to not live beyond their means.

What does that even mean?

Based on how many people fail to follow this counsel, it might be great to have a little review as to what that means.

Credit Cards

If you cannot pay off your credit card in full every month then you are living beyond your means. Credit cards can be great to earn cash back, airline miles, or other rewards, but if you can't pay it off every single month, then you are hurting yourself. You are literally spending money that you do not have. If you can't earn the rewards responsibly, then say goodbye to the cards.

Housing

Just because the lender says you can afford it doesn't mean you can. They tell you the maximum you can afford each month while doing nothing else. They also don't take tithing into account. Who cares if so and so has a 9 bedroom house with hand-scraped hard wood floors, a gourmet kitchen, and a theater room! Figure out what you need and see if you can fit it into a 15 year loan (or less!). You'll be much happier in the long run and it lowers the risk that you will owe more than your home is worth, even if the market takes a dive. Living beyond your means = buying at the top of the range the bank said you can afford. Jumbo loans can also indicate a problem. Is your house for showing off or is it for housing your family?

Cars

A brand new car immediately depreciates as soon as it is driven off the lot. If you only pay the minimum down payment you are immediately in debt for thousands more than the car is worth. A new car is a luxury item. If you can't pay for it in cash, consider a used car that you CAN afford.

Vacations

If you can't comfortably pay for your vacation in cash, then you shouldn't be going on it. I'm not saying you have to use actual cash, I'm saying that if there is any kind of loan or use of credit (that you aren't going to be able to immediately pay off) involved, that's a vacation you shouldn't be taking. I don't care how great of a deal the airline tickets were, or how much you really want to take your kids to see Halloween at Disneyland. If you don't have the money to pay for it, you shouldn't be going.


Emergency Funds

Do you have an emergency fund set up? Does it have any money in it? You should have an emergency fund for things like that trip to the ER, the blown radiator on the car, the A/C that went out, and the dishwasher that flooded the kitchen. If you don't have an emergency fund that can cover these things, you'll end up going into debt to pay for them. If you can't afford to have an emergency fund, you may be living beyond your means.







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