Live below your means and be ready for the next recession

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DISCIPLINE

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This discipline is very important and goes hand in hand with having a mature understanding of wealth. If you are a real estate professional or someone that is self-employed, you tend to be an optimist. Having an entrepreneurial spirit usually coincides with having a can-do attitude, and a higher tolerance for risk. However, that optimism can sometimes work against us, because we also tend to think that the good times will last forever.

Those who have been in business for a significant period of time, know that recessions are normal. Economic cycles are just that, they are cycles. They go up and they go down and it’s really important that we prepare for down cycles along the way. 

The key to living below our means is to keep fixed expenses as low as possible. Fixed expenses are those that will get you in trouble if things go bad, because you can’t change them to adapt. Fixed expenses are things like a lease, a loan payment, an employee, or debt. A variable expense is something that you can change.

They typically rise when income or revenue rises, and they tend to go down when income or revenue goes down. You want to focus more on having variable expenses rather than fixed expenses. You want to be very careful about what you lock yourself into. A good rule of thumb would be to keep fixed expenses at 20 percent or below your gross income in order to live below your means (or at least closer to that than you are now!).

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