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Expense Tracking: Living Within Your Means

In this guide, we’ll help you develop a greater understanding of what living within your means actually involves.

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Eager to create a budget and manage your monthly spending? You’re not alone. Budgeting among Americans is on the rise, with a record 80% of U.S. adults reporting that they use a budget to manage their expenses. 


It gets even better: Among those adults using a budget to manage their money, 88% say their budgets have helped keep them out of debt, cleaning the way for greater financial gains and planning for long-term goals.


As you take steps to start living within your means, getting control of your spending is a key step. While we can’t always increase our income on a whim, there are often a number of changes we can make to control and reduce spending to achieve more sustainable spending habits that will open up new financial opportunities.


In this guide, we’ll help you develop a greater understanding of what living within your means actually involves. 


We’ll also help you take steps to not only stick to a budget but also to make greater use of expense tracking to control spending, prioritize saving and investing, and lay out a blueprint for improving your long-term quality of life through more intentional money management in the months and years ahead.

Download a PDF version of this guide by filling out this form, or keep scrolling to read.

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Chapter 1

What does living within your means actually mean?

One of the common misconceptions of living within your means is that it refers to spending habits that don’t exceed your monthly budget. In other words, if you earn $3,500 a month, this would mean spending no more than $3,500 in that given month.


But this approach to money management, while feasible in the short term, is not sustainable when planning for the future, including for your retirement. 


In reality, living within your means is meant to refer to a far more aggressive and sustainable financial plan — one in which you’re consistently spending less than your earned income in a month and creating space to put that money toward other financial goals.


To truly live within your means, you need to be hitting monthly spending and saving objectives that will help you achieve long-term goals such as buying a house, retiring at your target age and supporting the kind of lifestyle you desire for yourself in your golden years.


Chapter 2

What’s the importance of tracking expenses within your budget?

Setting a broad spending limit for your monthly budget is a useful first step — and if you don’t already have a budget in place to guide your spending, you should prioritize building a budget to help you better manage your money and your spending each month. Our Home Budget Analysis tool makes it easy to create a detailed budget specific to your income and spending levels.


But a budget alone won’t facilitate more actionable changes to your spending behavior unless you are also using expense tracking to manage that spending. Some online and mobile budgeting tools offer built-in expense tracking to help you closely monitor and manage your spending. In other cases, you may need to perform this expense tracking on your own.


Even if an online tool offers expense tracking within its platform, many consumers will benefit from manually tracking expenses through a template they’ve created on their own. This can be a great way to improve your awareness of your spending habits, which in turn can help guide effective changes that will deliver long-lasting value.


By breaking down your budget by spending category, you can monitor your progress across a wide range of categories — including rent/mortgage, groceries, entertainment, utilities and more — to monitor your success (or lack thereof) in reaching those goals.


Chapter 3

Why should saving and investing be treated as expenses?

If you’re truly living paycheck to paycheck, you aren’t saving or investing and can’t take steps toward retirement — and that means you aren’t living within your means since your spending habits aren’t sustainable over the course of your life.


One way to solve this problem is to start treating saving and investing like expenses. As you begin living with your means, you should begin putting money every month toward financial goals that will increase your short-term financial stability, your long-term net worth and your ability to fund your retirement.


Unsure where to start in this process? Here are some basic steps to take advantage of expense tracking and leverage its spending structure for your personal financial gain:


1. Set up an emergency fund.

If you don’t currently have any cash reserves to cover unexpected bills, a loss of income or another emergency, an emergency fund should be your top priority. Expenses that don’t fit into your budget won’t be easy to pay if you suddenly have to find money within that fixed spending amount to cover those new costs, and that could quickly lead to credit card debt, late bills and other financial consequences.

Financial experts recommend building an emergency fund equivalent to 3-6 months of your living expenses. If that number is intimidating, though, start small and build your emergency fund over time. Even modest contributions can offer financial security to help you pay down unexpected bills.


2. Place reserve savings into a high-yield savings account.

Your emergency fund and other savings shouldn’t be allowed to sit idle in an account that doesn’t earn any interest. Even a small interest rate can represent free money without any risk in exchange for holding your emergency funds in an interest-bearing account.


Shop around to find the highest-yield account that suits your savings needs. You can also consider opening a certificate of deposit, although money placed into a CD will be inaccessible until it reaches its maturation date, which could range from weeks to months.


3. Invest in a 401(k).

If your employer offers a 401(k), you should create a plan for making pretax contributions to this fund. These contributions are deducted from your paycheck, reducing your net pay for every pay period, but they also reduce your taxes owed in exchange for making investments toward your retirement.


Many employers also offer 401(k) matching and will match a certain percentage of the contributions you make in any given calendar year. These matching dollars are free money that you forfeit by failing to make your own contributions, so you are encouraged to find a way to fit 401(k) contributions into your spending budget — especially if those contributions will be doubled through employer matching.


4. Make contributions to other retirement and investment accounts.

In addition to an employer-sponsored 401(k), you may benefit from contributions to other retirement accounts and general investment accounts without any tax benefits.


Roth IRAs, for example, offer taxable investment contributions in exchange for tax-free growth over time, which can be useful when planning for your retirement.


Regular investment accounts, meanwhile, offer the benefit of easier liquidity and penalty-free access if you want to access those funds at any time. If you’re unsure where or how to distribute these investments, a financial planner can help you explore your options and develop a strategy aligned with your goals.


5. Reevaluate your investment contributions over time.

However you allocate saving and investing within your budget and expense tracking system, remember to revisit these contributions over time to make sure they’re still serving your financial goals. 


Expense tracking can help you monitor contributions to different bank and investment accounts and can also help you identify new ways to reduce or modify your budget categories to accommodate new expenses or savings goals.

Chapter 4

How do you manage spending as your earned income changes?

Between promotions, new jobs and careers, changes to your work schedule and other factors, your annual income is almost certain to change over time. But those changes may be unpredictable and include both raises and income increases as well as pay cuts, job loss and other disruptions to your long-term financial planning.

When earned income increases, it’s tempting to raise your standard of living accordingly. But you should first consider how this income increase could be used to fund increased contributions to savings and retirement.

On the other hand, reductions to your income can be accounted for by trimming back spending in your budget. Expense tracking can be a great tool to identify categories where these cutbacks are easier to implement, helping you manage a more actionable plan that alleviates the sting of this financial shortfall.

Chapter 5

How will today’s expense tracking pay off in retirement?

Broad budgeting can offer a rough guide to managing your spending relative to your income. But true money management requires regular expense tracking that monitors spending by category and makes it easier to account for new bills, spending goals or financial needs.

By accounting for saving and investing as a budgeted expense, you can align your budgeting efforts with your long-term financial planning and security — and make sure your day-to-day habits are making it possible to live within your means both now and for years to come.

As you approach expense tracking and broader financial planning, your local credit union offers a wide range of products and resources to help you turn this vision into reality. Contact us today to open an account.



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