Have you ever heard the phrase “live below your means”? It’s a popular piece of financial advice, but what does it actually mean? And more importantly, how can you do it?
In this post, we’ll break down what it means to live below your means and share some tips on how you can start doing it today.
Defining What It Means to Live Below Your Means
In simple terms, living below your means is when you are spending less than you earn.
For example, suppose you bring home $4000 each month after taxes. If you invest some, save some, and spend the rest, you are living below your means. Why? Because you aren’t spending everything you earn.
This means that you are not using all of your income to fund your lifestyle. Instead, you’re saving some of your money so you can afford things in the future or in case of an emergency.
How to Tell If You’re Already Doing This
Take a minute for at least a gut check of your situation:
Do you need to use credit cards to make ends meet? You’re not yet living below your means.
Do you send money to savings and investments each month, and usually have extra money sitting in your checking account? You’re likely already in good shape.
If you’re not sure where you stand money-wise, start by doing a check of your accounts and tracking your spending over the next 30 days.
The Benefits of Living Below Your Means
Living below your means is a great way to build financial security and freedom. It’s also a great way to grow your wealth over time.
Some of the benefits of living below your means include:
- More money in savings. When you live below your means, you’ll have more money left over each month to save. Having money in savings makes dealing with emergencies, buying big ticket items, and doing fun things much easier.
- Less stress. This is huge! Living paycheck to paycheck can be stressful. By living below your means, you can reduce stress and live a happier life.
- Improved lifestyle. When you live below your means, you’ll have more money to spend on things that improve your lifestyle, like travel and experiences. This is because you won’t be spending extra for everything by being in debt.
How to Start Living Below Your Means
If you’ve determined that you’re not yet living below your means, here are some ways to start.
The most obvious way is to cut back so that you spend less than you already earn each month. This can be done by reducing unnecessary expenses, both large and small.
(Here’s an entire list of money saving tips to give you some ideas.)
Another way to live below your means is to go the other direction and make more money than you spend.
And of course, you can work at it from both directions by working to spend less and make more.
Tips for Living Below Your Means
Here are a few tips to help you live below your means:
Track your spending
The first step to living below your means is to find out where your money is going each month. This can be done by tracking your spending for a month or two.
As you learn where your money is going, you can start making changes to save money. This is especially useful if you align your spending with what’s important to you.
Make a budget
Next up is making a budget. A budget will help you live below your means by telling you how much money you can spend each month. A zero-based budget is especially helpful.
You can use this free budgeting form to get started. It’ll also help jog your memory about some expenses that are often overlooked.
Cut back on expenses you don’t truly need or want.
One of the best ways to save money is to cut back on unnecessary expenses.
By doing a budget and putting things in order of how important they are to you, you can find areas to cut. Sometimes even painlessly!
Pay yourself first
Wherever possible, send money to savings and investment accounts first. That way they money will go to where it needs to be right away, vs possibly slipping away like water. Make sure you have an emergency fund as well.
Get out of debt
Getting out of debt (especially high interest debt!) is key too.
When you’re carrying around a balance on your credit cards or making loan payments each month, it’s tough to live below your means. That’s because a good chunk of your income is going towards paying off debts, leaving less money for other things.
So if you want to start living below your means, one of the best things you can do is work on getting out of debt. Once you are debt free, you’ll have more money each month to save and invest. This can help you reach your financial goals a whole lot faster.
Ready to start making this a reality? It’s easier than you think! Just take it one step at a time and before long, you’ll be on your way to financial freedom. It’s a great way to live!