From financial advisor Alyssa Young’s October 2023 newsletter
Living within your means is a straight-forward, practical way to establish a comfortable financial situation throughout your lifetime. A little frugality makes a big difference when money is tight. The basic approach described below can help people of any age manage their cash flow and accumulate the funds they need for the lifestyle they desire.
Record your monthly income.
Keep track of where your money is going. Write down everything you spend on paper, in a computer file or in a note on your phone. After a few months of data collection, find your average monthly spending.
What is the difference between your income and average expenses?
Your spending shouldn’t exceed your income. (That’s the definition of living beyond your means—a bad situation.) It’s extremely important to avoid racking up a credit card balance higher than you can afford to pay off when the bill comes. Once you’re buried in credit card debt, it can be incredibly difficult to get out. The high interest rate you’ll pay means you’re paying a lot more for everything you bought with the credit card.
Ideally, instead, you will allocate savings/investing as a line item in your budget. Treat it like a bill you must pay. Saving 15% of your income is a good place to start. To free up more cash for saving, categorize your spending into necessities vs. the flexible amounts and look for opportunities to cut back or set limits for yourself.
Your first goal should be to establish an emergency fund (money that’s safe, liquid/easily accessible—in the bank) that totals three to six months’ worth of expenses. Put the bulk of your monthly savings into that fund until you reach that milestone, and then invest a smaller portion of the savings into a retirement account (a 401k if available, and/or Roth IRA if not). Once the emergency fund goal is met, you can get more serious about retirement or another savings goal, such as saving to buy your first house.
Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk, including the possibility of loss of principal. Annuity guarantees, including guarantees associated with benefit riders are subject to the claims-paying ability of the insurance company. Surrender charges may apply if money is withdrawn before the end of the contract.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should be relied upon when coordinated with individual professional advice. This information is not intended to be a substitute for personalized financial planning, tax planning, or legal advice.
Securities offered through The Strategic Financial Alliance Inc. (SFA), Member FINRA, SIPC. Advisory and tax services offered through MtM Financial Group, LLC which is otherwise unaffiliated with SFA. 4505 Hanoverville Road, Bethlehem, PA 18020. SFA does not provide tax or legal advice. Supervising office 888-447-2444.