Live-Below-Your-IncomeIf you’ve been on your own for more than a few years then chances are strong you’ve already found some ways to cut down on your monthly spending.  Skipping Starbucks in favor of home-brewed coffee and buying generic products at the grocery store help chip away at those expenditures and keep your budget plan in the black.

However, as the cost of living continues to rise, especially in urban areas, simply buying no-name ketchup instead of Heinz may not be enough anymore.  Middle-class Americans are clipping coupons like crazy but still losing their homes.  Why does it seem that money management has become so much more difficult?

There’s probably no single answer or solution.  But a big part of the problem, say economists and financial professionals such as Suze Orman, is “keeping up the Joneses.”  Another, the experts agree, is that many people simply haven’t been taught how to budget.

Finally, they say, Americans who grew up in middle class America in the 1960′s, 1970′s and 1980′s did so expecting to find “the American dream.”  That is, they learned that if you went to college you’d get a good job that would provide you with enough money to have a home, car and lifestyle similar to the one in which you grew up.

Unfortunately, inflation has made the cost of everything much higher, relatively speaking, than 20, 30 and 40 years ago.  Students are emerging from college and beginning independent life already in debt.  Add to that a new car and a mortgage and today’s Americans owe far more than they actually own.

If you really want to get ahead today (or even simply catch up) and have something besides credit card debt to pass on to your children, you must truly live below your income.  Buying generic is a good start, but experts say that there are three major areas that, if you address prudently, you can get out of debt faster, own your home sooner, and retire with enough money to live on comfortably.  It’s less about “micro” saving and more about “macro” saving.  Here’s what you need to do:

1) Keep your housing cost at 35 percent or less of your monthly income.  This is getting much harder to do than ever before.  Your parents may not have made a fortune, but they probably had an average-size house with a backyard and a garage.  If so, you probably always assumed you’d end up with the same.

Economists say that if we are to address increasing consumer debt, we must put aside that notion of “the American dream.”  Many European countries have long ago given up the idea that every middle class worker deserves a nice house with a back yard and a garage with a new car in it.  Most Europeans are downsizing, and, they say, Americans ought to do the same.

If your monthly rent or mortgage payment exceeds 35 percent of your monthly income, you need to downsize.  If you don’t, it’s not a matter of “if” you will fall into chronic consumer debt.  It’s rather a question of “how soon.”

2) Cut up the credit cards.  People have all kinds of excuses for keeping them around.  Consumers tell themselves they’ll keep them just for emergencies, or for ID purposes or for reserving hotel rooms.  But most, say the experts, are simply kidding themselves.  The best way to avoid credit card debt is simply not to have a credit card.

Instead, pay cash for everything.  You’ll learn very quickly to stay within your budget plan and avoid buying items that are beyond your means.

3) Keep your vehicle for as long as you can.  Consumers have bought into the idea that newer cars cost less to own.  Therefore, they upgrade to a new vehicle every two or three years.

This is a falsehood perpetrated by some car makers and sellers.  The truth is that you’ll pay far less if you buy a new car and then hold onto it for 7-10 years.

The money that you would have spent on the high interest of a car loan can instead be put into maintaining your car meticulously.  At the end of your car’s life you’ll almost always find that you spent less overall maintaining that one car than buying new every few years and paying interest on loan payments.

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