Thursday, November 12, 2009

The Step-Down Method: Is living within your means enough?

I have a friend who always lives within his means. However much money he has, he spends just a little bit less than that. He's certainly doing better than those who drown themselves in debt.

It is almost funny to see how quickly he adapts his lifestyle to his current income. He's single, and incredibly talented. When he's employed, he usually makes quite a bit of money. When this happens, he buys all sorts of nice things for himself and eats out a lot. When he's unemployed, he still, somehow, manages to survive (I assume he does some good food storage).

This reminds me of what happened when I got my first full-time, professional position. We immediately bought a bunch of nice things - because we had money. It took us a few months to realize how little money we were actually saving, even though we were making far more money than we had before. Decreasing our spending by a mere 10% resulted in a substantial surplus that we could put into savings.

Though the step-down method is usually targeted at those with debt, it can be especially useful for those who are just barely living within their means. The seven years of plenty are often followed by seven years of famine.

No comments: