Some words and phrases just feel good. Summer vacation. Sleeping in. Cubs win.
Financially speaking, one of my all-time favorite words is margin.
And it feels even better than it sounds.
Think of it as financial breathing space, a wonderful gap between income and expenses.
It reduces stress, provides the flexibility to give or save more, and is good for the soul.
Do you have financial margin? If not, here are some key ways to move toward it.
Start with the right framework
There are only five things you can do with money: Spend it, use it for debt payments, save it, invest it, and give it away.
Unfortunately, that’s the order many people follow, which makes it difficult to give generously, save adequately, and experience financial margin.
Far better to put those priorities in this order: For every dollar you receive, give some away, save some, invest some, and then spend what remains on your lifestyle. Along the way, avoid all debt with the possible exception of a reasonable mortgage.
Debt is one of the biggest roadblocks that keeps people from enjoying financial margin.
If your mortgage requires too much of your income, consider something radical.
If you have a financed car, make this your last car loan.
If you have other forms of debt, commit to getting out from under it. It may take a while (It took me five years), but it’ll be so worth it.
Go big
Some expense categories loom larger than others. Getting these right will go a long way toward helping you experience margin.
We already talked about how much to spend on housing: No more than 25% of gross income—even better if you can keep it to no more than 20%. Do that on one income and you’ll be a pro at this whole financial margin thing.
We also talked about transportation. The sooner you can become a no car payment household, the sooner you’ll have margin.
Those are usually people’s two biggest expenses. But then there’s all the rest. Look for ways to spend smarter, more intentionally, in all of them. Lots of little changes, like how much you spend on TV services, add up to a lot and point the way toward a life of margin.
Do you have financial margin? If so, what have been the keys to achieving and maintaining it?
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