Living Below Your Means, part 1

Knowledge gives you power over money

The average American family walks around lugging $7,000 in annual consumer debt, according to CardTrak. That's a little more than $583 per month in extra money spent, if you want to see it in stark terms. Clearly, most people are living beyond their means.

As a solution, pundits and the popular media suggest living within your means. Heck, it's even suggested that our government adopt this money style. Seems simple enough: you don't spend more money than your household takes in. That's it. It ought to be doable, and it is. But it doesn't go far enough.

If you live within your means, you won't add to the mountain of consumer debt faced by most families. Your family will have enough money to pay for life's expenses. This is a good thing, mark my words. But it's not enough. You can go on forever living within your means and never gain the security and peace that comes from a more radical step: living below your means.

Spending less than you receive in income is the key. Easy to say, but hard to do? Maybe. I know everyone isn't an accountant. But if you're committed to a worry-free financial life, you've got to think like one for a few months. Trust me. It's not easy, and it's generally not much fun, unless details are your thing. If you want to end up with a surplus, it's a step that can't be skipped.

Knowledge is power, so they say, and the way to gain knowledge about your family and money is to write down every penny spent by any family member for three months. That's all. No fancy budget formulas, no guilt. Just write it down. This step is difficult simply because of its tedium and because it's not the way it's always been done. Difficulty levels can increase with more family members spending money. A first entry in the spending log might be tiny spiral-bound notebooks and pens for each spender.

Write it down!The proper tools can help, but without agreement among the responsible members of the family, notebooks won't get you very far. In each couple, there's usually one who spearheads each change. Maybe you are the one who wants more financial stability, maybe it's your partner. A minimum of agreement has to exist before living below your means is a possibility.

Some of us need to be shown results before signing on to a program. If you're the one pushing for this change (and it is a big one), take it easy on your partner. Perhaps agreeing that you won't require to-the-penny accounting if your partner tells you the total amount they've spent will be enough to start with. Face it--there's going to be some spending that won't get recorded. You're hoping for a pretty-good compliance rate, not perfection.

So now, it's three months later, and you've done a pretty good job writing down your spending. What you have is a mound of raw data. Next comes a much more fun step. On a piece of paper or your computer financial program (many people like Quicken), roughly list budget categories. In my family, they are divided into income and outgo. Income is any money we receive, whether regular salary or unusual earnings. Outgo gets divided by use. Utility companies, groceries, animal-related costs, clothing for each family member, books, eating out, auto insurance and gas, each of th vjese gets their own line. Your family's budget categories will reflect how you spend money.

One important bit--don't neglect any budget item now, no matter how small. For instance, you may want to lump cleaning and personal hygiene products under groceries because you get them at the same store. Fine, except remember that they're there. Knowledge is power, and detail will make your money picture clearer.

Run totals. Ideally, your outgo won't exceed your income. In reality, sometimes that's not the case. No matter what your totals look like, you've got a road map to your money future. If you're in the red, do you notice any obvious hot spots? We found that our "miscellaneous" category was using up about $200 a month more than we'd planned. Without record keeping, we didn't know where it was going. Maybe there's something evident on first look, maybe not.

Assuming that increasing your income isn't a real possibility, what do you do to lower your expenses so you aren't spending the limit? I'll cover some ways to do that in the next part of this article. But one last bit of good news: you don't have to spend a lot less than your income to be making progress. Creating any overage at all is an accomplishment to savor.

Living Below Your Means, Part Three: Hatching that nest egg

Contributing Editor Stefani Leto writes and parents in the Bay Area. Mother of an almost-five year old and an infant, she says nothing challenges her mind like parenting. Her work also appears at and