How to Live Fiscally Fit 365 Days a Year

Updated on October 2, 2017
Gregory DeVictor profile image

Gregory is a financial adviser and author. He writes e-books on consumer finance topics and specializes in the U.S. grocery industry.

Introduction

Are you frequently short of cash at the end of the month or between pay checks? Are you making late payments on your mortgage, car loan, or utility bills? Do you use credit cards to pay for daily living expenses such as groceries or a tank of gas? If you answered yes to any of these questions, you could be in the midst of a financial crisis. Oftentimes, cash flow problems occur because you have wittingly or unwittingly mismanaged your financial portfolio. This hub teaches you 12 ways to live fiscally fit 365 days a year.

First, here are several facts about consumer spending and debt in America:

The average American household has over $150,000 of debt. Liabilities include mortgages, car loans, student loans, credit card balances, medical bills, signature loans, back taxes, and overdraft charges. More than a third of the country is in trouble when it comes to paying bills on time. Recent studies have found that the average American household saves about 3.5 per cent of their annual income while the average Asian family saves over 30 per cent of their yearly earnings. Whether the annual income for an American family is $20,000 or $200,000, they are likely to spend most, all, or more of what they earn.

If you're an average American, you spend $1.26 for every $1.00 that you earn. For example, if your annual income is $50,000, you spend $63,000, a difference of $13,000. If your annual income is $75,000, you spend $94,500, a difference of $19,500. If your annual income is $125,000, you spend $157,500, a difference of $32,500. And so forth.

How to Live Fiscally Fit 365 Days a Year

1. First, you must take full responsibility for your irresponsible spending and savings habits and admit the reasons for your financial mistakes. Therefore, you should not be afraid to ask yourself questions like these:

“Have I ever tried to live on a budget or within my means?”

“Do I look at money management as a dreaded chore?”

“Do I have enough cash set aside to cover six to nine months of essential living expenses in case of a financial emergency?”

“Do I buy things on impulse or to impress others?”

“Do I use credit cards to supplement my income?"

“Do I treat credit cards the same as cash?”

“How many times do I eat out every week or month?”

“Do I live paycheck-to-paycheck?”

“How much money do I spend on cigarettes, lottery tickets, and “coffee-to-go” every week?”

“Why did I have to make an early withdrawal from my 401(k)?”

“Do I know my credit score?”

“Have I ever taken a cash advance on one credit card to pay the minimum amount due on another?”

“Do I worry a lot about money and debt?”

As you can see, the list of questions is endless.

2. Trim the excess fat from your budget.

Trimming the excess fat from your budget is not as difficult as it might seem. Although you may have little control over your mortgage or day care costs, you can save hundreds or even thousands of dollars every year on groceries, utilities, cell phone charges, cable bills, transportation costs, insurance, taxes, bank fees, a new car or computer, dental care, prescriptions, entertainment, and much more.

It’s not as hopeless as it seems.

How much money can you expect to save each month by trimming the excess fat from your budget? That is the $64,000 question, since results vary from household to household. Variables include income, size of household, spending habits, time management, level of enthusiasm and discipline, willingness to change, and prospects for the future. Here are some guidelines you might consider:

  • If your income is $50,000 or less, try to eliminate $250 - $500 a month in nonessential expenses. That adds up to $3,000 - $6,000 a year.
  • If your income is between $50,000 and $100,000, try to eliminate $500 - $1,000 a month in nonessential expenses. That adds up to $6,000 - $12,000 a year.
  • If your income is between $100,000 and $150,000, try to eliminate $1,000 - $2,000 a month in nonessential expenses. That adds up to $12,000 - $24,000 a year.

3. Keep a budget and come to realize that budgets are necessary evils.

In addition to keeping a budget, get into the habit of writing down every cent that you spend. “Every cent” includes the $150 electric bill that you paid yesterday, the vitamin supplements that you bought this morning, and the ten gallons of gas that you will purchase tonight. It also includes all nonessential expenses such as cigarettes, lottery tickets, or the blueberry muffin that you buy every morning while on your way to work.

Once a week, go over your list of expenses and decide which ones can be eliminated or reduced. You will have more money left over at the end of the month or between paychecks and will not have to struggle to make ends meet. When implemented properly, writing down every cent that you spend will become a winning strategy for your entire household.

If you think that writing down every cent you spend is a time-consuming or daunting task, well think again. What you really need to do here is to renew your mind and to start letting go of everything in your life that is not bearing good fruit. Here are some classic examples:

  • How much time do you spend every day on Facebook, Twitter, and other social media sites?
  • How much time do you spend every day talking on your cell phone, texting, or watch television?
  • How much time do you spend complaining about the weather, traffic congestion, taxes and politicians, your job, the cost of living, cleaning the house, doing the laundry, paying the bills, your spouse, the neighbors, your Internet connection, the Super Saturday sale at Macy’s that you missed, and a gazillion other trivial matters?

Although I am probably ruffling a lot of feathers right now, I sincerely hope that you get my point.

4. Live below your means and create a lifestyle that conforms to your income. You will have money left over at the end of the month and will not be burdened with trying to make ends meet.

In order to live below your means, stop trying to keep up with “lavish, high-roller” friends who have careless spending habits. Your financial well-being is more important than trying to impress Mr. and Mrs. Jones with a $499 coffee table or a $99 jewelry box. Mary Hunt asserts:

Living below your means in this high-pressure, credit-based, gotta-have-it-all-right-now society is not exactly easy. It takes skill and determination to go against the tide and buck a system that encourages spending all we have now plus what we hope we'll get in the future.

Overspending on "little things" can eventually become big money leaks. For example, if you spend $6.50 every day on a pack of cigarettes, that adds up to $2,372.50 annually.

5. Set aside enough cash to cover six to nine months of essential living expenses for financial emergencies. Essential living expenses include housing, utilities, transportation costs, groceries, personal care expenses (haircuts, etc.), insurance, health and child care, property taxes, necessary clothing, and pet care. Keep this cash in an FDIC-insured savings or money market account.

6. Pay all of your bills on time to avoid late fees. A late fee--also known as a past due fee--is a charge levied against a person by a company or organization for not paying a bill or returning a rented or borrowed item by its due date. Late fees are assessed on your mortgage, cellphone, cable, utilities, insurances, credit cards, library books, traffic tickets, and of course Uncle Sam.

7. Contribute regularly to your employer's 401(k) because most 401(k) plans also include a matching contribution from your company (a.k.a. free money).

If you cannot contribute the max to your 401(k), contribute enough to receive your employer's matching contribution. According to the 401k Help Center, “The average company contribution in 401k plans is 2.7% of pay. Numerous formulas are used to determine company contributions. The most common type of fixed match, reported by 40% of employer's, is $.50 per $1.00 up to a specified percentage of pay (commonly 6%).”

Let’s say that you earn $50,000 a year, contribute 10% to a 401(k), and receive a 50% match from your employer of up to 6% of your salary. Here is how your annual contribution and match break down:

  • $50,000 – annual income
  • $5,000 – 10% contribution to 401(k)
  • $1,500 – 50% matching contribution (free money) from your employer of up to 6% of your salary
  • $6,500 - Total yearly contribution to retirement account

Here is another example:

Suppose that you earn $100,000 annually, contribute 12% to a 401(k), and receive a 25% match from your employer up to 10% of your salary. Here is how your annual contribution and match break down:

  • $100,000 – annual income
  • $12,000 – 12% contribution to 401(k)
  • $2,500 – 25% matching contribution (free money) from your employer up to 10% of your salary
  • $14,500 - Total yearly contribution to retirement account

Here is a third example:

Let's say that you earn $70,000 annually, contribute 10% to a 401(k), and receive a 100% match from your employer up to 3% of your salary. Here is how your annual contribution and match break down:

  • $70,000 – annual income
  • $7,000 – 10% contribution to 401(k)
  • $2,100 – 100% matching contribution (free money) from your employer up to 3% of your salary
  • $9,100 - Total yearly contribution to retirement account

By the way, over 40% of American households are "at risk" of not having enough income to maintain their pre-retirement standard of living when they retire. Therefore, you should think twice about withdrawing cash early from your 401(k). You can use this calculator from Wells Fargo Bank to estimate how much in taxes and penalties you might owe if you withdraw cash early from your 401(k).

8. If you have an Aldi store near you, don’t waste another minute and start saving up to 75% on many of the groceries that you would normally buy at a traditional supermarket. Here are 10 reasons why Aldi is the low-price leader:

  • In order to maintain their reputation for rock-bottom prices without compromising quality, Aldi is strictly a “no frills” operation.
  • The average Aldi store is only 10,000 to 11,000 square feet. The Food Marketing Institute (FMI) observes that grocery stores nationwide have increased dramatically in size, from an average of 18,000 square feet in 1980s to between 30,000 and 45,000 square feet in 2000. In 2007, the FMI noted that the median store size was 47,500 square feet.
  • Aldi keeps their carts in one convenient place. You put a quarter in the cart, shop, and then return the cart to get your quarter back. This helps to keep prices low because Aldi doesn’t have to spend time retrieving carts.
  • They do not have a rewards card or a fuel perks program.
  • There are only 1,500 products to choose from at Aldi, compared to over 40,000 at a traditional supermarket like Kroger or Safeway.
  • Aldi does not accept manufacturer’s coupons and is not a member of the SavingStar.com e-coupon program.
  • At the checkstand, Aldi accepts cash, debit cards, most major credit cards, and food stamps. However, they do not honor checks. If you pay for your groceries by debit card, you can request cash back at the point-of-sale.
  • You must bag your own groceries as well as supply your own paper or plastic bags. As a convenience, Aldi sells both paper and plastic bags for a modest price.
  • Aldi stores do not have pharmacies, wellness centers, in-store bank branches or ATMs, butcher shops or fresh seafood departments, in-house bakeries or delis, floral departments, fax services, or a dry cleaning and shirt laundry service.
  • You cannot purchase money orders, postage stamps, lottery tickets, public transit passes, or tobacco products at Aldi. In addition, Aldi does not have a check-cashing service and does not sell gift cards for major retailers like Target, Macy’s, or Best Buy.

9. Here is a list of banks and credit unions that offer free or low-cost checking:

  • Alliant Credit Union
  • Ally Bank
  • Aspiration Summit
  • BBVA Compass
  • BankMobile
  • Bank of Internet USA Rewards Checking
  • Capital One 360
  • Chime Spending Account
  • Discover Cashback Checking
  • EverBank
  • First Internet Bank
  • GoBank
  • Mutual of Omaha Bank
  • Radius Bank
  • Salem Five Direct
  • Schwab Bank
  • Simple.com
  • State Farm Bank Checking Account
  • UFB Direct
  • USAA Federal Savings Bank

10. Never look at money management as a dreaded task. If you want to live smarter financially, wise money management is a daily responsibility. You can complete routine financial tasks more efficiently and with less mental effort if you approach them as constructive uses of time and not as dreaded chores. Laura Adams declares:

If money management isn't something you enjoy, consider my perspective. I look at managing my money as if it were a part-time job. The time you spend monitoring your finances will pay off. You can make real money by cutting expenses and earning more interest on savings and investments. I'd challenge you to find a part-time job where you could potentially earn as much money for just an hour or two of your time.

11. Get long-term disability insurance. So just why do you need long-term disability insurance? According to the Social Security Administration, "Just over 1 in 4 of today’s 20 year-olds will become disabled before reaching age 67." Being unable to work because of an accident or illness can have a devastating effect on your finances if you are not prepared. Since many private-sector employers do not offer long-term disability insurance to their workers, having private LTD protection has become a necessary evil.

12. Get adequate health insurance for your family because medical debt is the number one cause of bankruptcies in America. If you don’t have health insurance, one hospital visit could saddle you with tens of thousands of dollars of out-of-pocket expenses. Remember, investing in insurance is investing in the quality of your life.

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