Home > Money Management > Budget Basics #10 – Creating Margin

Budget Basics #10 – Creating Margin

In business and financial terms, margin is typically defined as the difference between income and expenses.  For your personal finances, it can be thought of living below your means.

It’s easy to look at someone who is successful and wealthy and think that they are successful because they never have problems.  The reality is that sooner or later, every person and business will experience struggles and challenges.  Success is often the result of surviving problems, not the absence of problems.

There are cycles to the economy and to most businesses.  Success comes to those who can persevere through the downturns and hold on until things get better.  Margin helps to buy you time until things improve, and it gives you flexibility to make adjustments to handle your situation.

Like many people, I had a lot of margin a couple of years ago.  I was giving away nearly 30% of my income; taxes consumed another 25-30%; and I saved/invested another 10%.  As a result, I was living on about 30-40% of what I made.  Within a matter of months, things changed dramatically.

In addition to the economic recession, Lady M and I decided to relocate from Vermont to the great State of Texas.  Within a six-month period of time, we went from three sources of income to one.  Including employer-provided benefits, our income dropped by about 45% in a matter of months.  Having margin allowed us to make that move.

We had to make some adjustments in our giving, savings and spending to reflect the reduction in our income.  Too bad we couldn’t adjust our taxes as well.  Our margin shrunk, but thankfully, we have weathered the storm so far.  We are working towards increasing our income, expanding our margin and restoring our level of giving. It’s taking time, but we’ll get there.

How big of a margin should you have?  There is no universal formula.  It all depends upon your income, lifestyle and ability to make changes.  Margin is a lot like an emergency fund.  It won’t solve all problems or keep you from experiencing challenges, but it will increase the likelihood you will survive a challenge when it arises.

Want a few tips on how to create margin.  Here are a couple of articles you can read which may give you a few ideas.

18 Means for Living Below Your Means by Mark and Angel Hack Life.

10 Smartest Ways to Live Beneath Your Means by Dumb Little Man.

Advertisements
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: