1. I Will Live Within My Means

Many people get into a bad habit of spending more than they earn or spending money on items they want rather than on those they need. In turn, they get trapped in more debt than they can handle.

For example, say someone buys a new car, not because his or her current vehicle is broke down but because he or she wants to impress friends, colleagues, and neighbors with the latest model. Or a person’s closet may be overflowing with shoes and clothes because he or she wouldn’t want to be seen wearing the same item more than once.

Even if you aren’t guilty of overindulging, you may still very well be living beyond your means. In other words, your average spending is exceeding your average earnings, explains Gwendolyn V. Kirkland, a certified financial planner and managing principal with Kirkland, Turnbo & Associates in Chicago.

Some tell-tell signs: You find yourself living from paycheck to paycheck. You owe outstanding balances on several credit cards. You regularly use payday loans or credit cards to pay household bills, such as rent, utilities, and groceries. You have zero savings or fail to keep an emergency fund equal to three months worth of living expenses. You try to float checks in order to pay your bills.

Assess your situation. What can you do to live within your means? For starters, assess your situation, Kirkland says. You need to monitor two important figures: your average monthly income and your average monthly expenses.

“List your income from all sources (i.e. salary, pensions, Social Security, rental property, child support, alimony, commissions or bonuses). “How much money is leftover once you subtract your monthly expenses? If everything is covered by your income, you are living within your means. If not, you are going to have to reduce your expenses or increase your income,” Kirkland says. She suggests cutting back or cutting out unnecessary expenses, even if that means shutting off cable TV for six months to a year or eating out less often.

Develop a spending plan. Set a price that you are willing pay for items. This could mean that you don’t buy anything that isn’t on sale and you never pay full price for anything, be it a house, a car, clothing, etc.

Put in writing how much you plan to spend each week or each month. You can use spreadsheets and personal finance tools available via Quicken, Microsoft Money, BudgetTracker, or Wesabe, or you can simply use an Excel spreadsheet or a pen and notebook to track spending.

Kirkland cautions that earning more money won’t make a bit of difference if you don’t understand how to save it and apply it toward paying off your outstanding credit balances. If you don’t break the bad money habit of spending more than you earn, Kirkland says, you’ll have nothing to your name but debts–and maybe a great wardrobe.

Further Reading: Wealth For Life Principles

1. I Will Live Within My Means
2. I Will Maximize My Income Potential Through Education and Training
3. I Will Effectively Manage My Budget, Credit, Debt, and Tax Obligations
4. I Will Save At Least 10% of My Income
5. I Will Use Homeownership as a Foundation For Building Wealth
6. I Will Devise An Investment Plan For My Retirement Needs And Childrens’ Education
7. I Will Ensure That My Entire Family Adheres To Sensible Money Management Principles
8. I Will Support the Creation and Growth of Minority-Owned Businesses
9. I Will Guarantee My Wealth Is Passed On To Future Generations Through Proper Insurance And Estate Planning

10. I Will Strengthen My Community Through Philanthropy