Now more than ever, it is vital to tighten those belts and live within your means. With interest rates and inflation on the rise, the cost of living has become exceedingly expensive. Not everyone earns spectacular salaries or has the luxury of a family fortune. Yet some people are able to do it all without being wealthy. They have a nice home, drive a decent car and take family holidays, without running into financial trouble. The secret is to do everything in moderation.

Now more than ever, it is vital to tighten those belts and live within your means. With interest rates and inflation on the rise, the cost of living has become exceedingly expensive. Not everyone earns spectacular salaries or has the luxury of a family fortune. Yet some people are able to do it all without being wealthy. They have a nice home, drive a decent car and take family holidays, without running into financial trouble. The secret is to do everything in moderation.

Credit gives the illusion of something being within your budget, but this misconception can cost you dearly. Not only do you end up paying more interest and run the risk of landing in debt, you will miss out on valuable savings opportunities that ultimately have long-term implications on your retirement and the inheritance you leave for your children. News headlines scream about repossessions of houses and cars every day.

Living below your means allows you to save more. You'll be able to set aside more money for retirement, and having got used to spending less, the added benefit will mean lower withdrawal rates during retirement. If you save on monthly expenses, you will have more money to invest.

Living below your means also allows you to build up that important emergency fund - money for three to six months living expenses if you suddenly lose your job or have to deal with a family emergency. Living below your means also sets a good example to children, in contrast to the rampant materialism and teaching them sound money management.

Set some practical guidelines:

l Set limits for major purchases - house, car, family holidays. Make sure they are well within your budget, preferably leaving you with some money to spare;

l If you are a spendthrift or are tempted by impulse buying, set up a savings account into which money is automatically deposited directly from your salary each month;

l If you get a raise, bonus, tax refund or a monetary gift, save it.

The greatest reward of living below your means is peace of mind. Instead of lying awake at night worrying how you are going to meet your debt obligations or living in fear of losing your job, you'll sleep easy, knowing your finances are in order. Instead of constantly feeling stretched, there will be money to spare. The feeling that there is extra money is infinitely preferable to the stress of pushing your finances to the limit. This peace of mind will give you a better quality of life than a bigger house or a flashier car.

l The writer is director of Pioneer Financial Planning. Visit www.pioneer.co.za or e-mail help@pioneer.co.za