How can you live within your means to avoid debt?

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Answered by: Lisa, An Expert in the Avoid Debt Category
Half of Americans have more credit card debt than emergency savings, according to Bankrate. Reasons for going into debt vary: covering expenses during a job loss, subsidizing a regular salary or paying unexpected medical expenses. But regardless of the purpose for the debt, it's clear that Americans' indebtedness is rising at an alarming rate.



The solution for getting out of debt is just as clear: Live within your means. For many Americans, rising costs of living make this easier said than done. The following tips can help you chip away at your debts and begin to develop a buffer for emergencies.

1. Practice teamwork.



To reduce debt and begin building an emergency fund, every member of the household should work together. No plan will work without both partners on the same page, and teens should be part of the team as well so they understand that some sacrifices may be necessary to create a secure future. Even young kids can get in on the plan by understanding the need to cut back.

2. Create a budget.

Financial talk-show host and author Dave Ramsey tells callers they must write down their budget "on paper, on purpose, before the month begins." Even for people with a regular income, different months may include different expenses. The budget should include all money coming in and going out during the month budgeted.

3. Cut the fat.

If you've never created a budget, it may be a work in progress as you continue to think of expenses you overlooked at first. Don't forget irregular expenses like insurance, subscriptions and school fees. Once your budget is on paper, review it with the other members of the household and consider what to cut. Can you live with Netflix instead of the full package of cable channels? Can you reduce eating out to once a month instead of once a week? Can you shop big-box stores or clip coupons to trim the grocery budget? Every little bit helps, and you'll get better at cutting as you grow more experienced with budgeting.

4. Add to income.

Are all adult members of the household working as much as they can? Perhaps teens can get a part-time job to make their own spending money. A paper route or pizza delivery gig on weekends, even for the adults, can make huge dents in debt and help you achieve your goals much faster.

5. Know a true emergency.

Many people feel that a dead water heater qualifies as an emergency. In truth, many everyday calamities can be anticipated. Cars need maintenance and will eventually break down, as will water heaters, refrigerators, washing machines and just about everything else associated with a home. Home owners must consider routine maintenance, along with the occasional complete breakdown, as part of their expenses. True emergencies are loss of a job, death of a loved one or a sudden and expensive medical issue, and these should be accounted for in your emergency fund.

Learning to live within your means will take time and effort. With patience, teamwork and a written plan, you can reduce your debt and begin building a secure future.

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