Spending less than you earn, or making sure you live below your means, is one of the best ways to reach financial freedom.
This doesn’t mean you have to cut every cost or give up the things you enjoy in life either. There are still ways to appreciate the little things and live a fulling life while still making smart financial decisions.
There are many benefits to living below your means as well. Some of these benefits include:
- Not having to pay off debt each month
- You will save more money for the future
- Not needing to stress when a financial emergency comes up
- Eventually you will have some extra money to spend on things you enjoy
- You will stop living paycheck to paycheck
- Overall, less financial stress
So if you know that living below your means is what you need to do to reach your financial goals, but you don’t know where to start, this post will give you ideas on how to achieve this.
Let’s get started!
How to Successfully Live Below Your Means
Know Your Monthly Income
To start living within or below your means, you will first need to understand what your “means” are. This can be done by calculating how much money you are bringing in each month.
You can figure this out by choosing a budgeting method, or by calculating your net income from your pay stubs or bank account.
When you determine your monthly income, this will become your spending limit. The goal here is to not pay more than this monthly limit, but also to allocate all the money you have coming in every month to either spending or saving. Have a budget will really help you successfully do this, and there are several budgeting methods so you’re sure to find one that works for you.
Track Your Spending
The next recommendation to start living below your means is to track your spending.
There are some smart phone apps that will automatically do this for you, or you can track your spending yourself manually.
This will ensure that you do not spend more than your monthly income allows and can start to cut down on some unnecessary costs.
Cut Down on Unnecessary Costs
A $5 coffee here, a $15 brunch there. These costs can all add up quickly throughout the month if you aren’t careful. This doesn’t mean you can’t ever indulge, but your daily Starbucks habit probably isn’t helping your financial situation.
Once you figure out your monthly income and have started to track your spending, you should have a better understanding of your spending habits.
Here are some items that you may be able to cut from your monthly spending:
- Cable television (check out cable alternatives to save big money)
- Subscription services
- Gym membership
- Expensive date nights
- Name brand food and clothing
- Online impulse shopping
- Home décor
- Eating out (you can make meals at home for way cheaper)
- Anything that you don’t need to survive
When you understand that you really don’t need a ton of materialistic items and fancy nights out, you will learn to spend money on the items that are most important to you and then save and invest the rest.
Save Up for Purchases
Another simple, yet effective, way to live below your means is to save up for purchases. This will not only give you time to consider buying something but will also help keep you out of debt.
If you are typically tempted to impulse shop, try using the 3-day rule. This means you will need to wait 3 days after you find an item you want to buy to decide if you actually need it (or will actually use and enjoy it).
After the 3 days is up, if you still want the item, make sure to save up for it. If it is a larger purchase, you may need to save for a few months, but it will worth it knowing that you have the money for it.
Don’t Give In to Lifestyle Inflation
When a majority of people are given a raise or bonus from work, most of the time they will find new ways to spend it and will then perceive these new “wants” as necessities. This is considered “lifestyle inflation”.
This concept can be avoided by continuing to spend the same amount that you always have in the past, and when given a raise or bonus, use the extra money by saving it or investing it towards your future.
As tempting as it might be to spend more money as you make more money, the goal is to live like you’re making way less than you actually do.
Whether it be clothes or a car, buying second hand can save you a ton of money each month.
Instead of running out and buying something brand new, try finding it used on websites like eBay, Poshmark, or even at garage sales. There are tons of Craigslist alternatives out there to help you buy and sell great used items, saving you money.
Also, if you are looking to purchase a vehicle, buying a smaller, used one will not only save you money up front, but will also save you money with gas and insurance.
Pay Off Debt
Another tip to successfully live below your means is to pay off all of your debt.
This includes student loans, car loans, personal loans, credit card debt, or any other money that you owe to someone else.
The quickest way to pay off your debt is to only spend money on necessities and use whatever you have left over to pay down your debt(s). Making more than the minimum payment each month is key to paying off your debt quicker.
Be Careful With Credit Cards
Using credit cards to cover bills, pay for rent, or to buy other unnecessary items is one way to keep you from reaching your financial goals. This will also make it nearly impossible to live below your means.
This is because most people end up spending more than they normally would when using credit cards, and are tempted to only pay the minimum payment every month.
It is important to learn how to use credit cards the right way, or completely stop using them all together (for a while).
Heavy credit card usage can also show your bank that you may be in financial trouble. This could negatively affect your credit score, which will hinder you in the future if you try to make larger purchases such as a vehicle or a home.
Build Up Your Savings
Having an emergency fund or other savings accounts to rely on when something goes wrong is very important when living below your means.
Building up your savings can also help you to avoid using credit cards for financial emergencies.
You should make a separate category in your budget for emergencies and then set aside a certain amount of money each month for it. Once you know how much you can afford to put into it each month, try setting up an automatic transfer to automatically save the money for you.
Increase Your Income
If you are motivated to live below your means, increasing your monthly income can help get you there.
This could be applying for a second job, finding a successful side hustle, building up passive income streams, or simply putting in more hours at work.
Because there are so many different side hustles out there, chances are you can find one that works for you.
Here are some examples of side hustles you could start to increase your income each month:
- Start a blog
- Write and publish eBooks on Kindle
- Sign up for a dog-walking service and walk dogs
- Sign up for Amazon Flex and deliver packages
- Make and sell hand-crafted items on Etsy
- Sell items on eBay
- Apply for paid online focus groups
However you decide to do this, the extra income will help you put more money aside for savings and retirement.
If you are someone who typically overspends and lives paycheck to paycheck, getting your finances under control might sound intimidating.
But, if you implement the steps above to start living below your means, they will help you make progress toward your financial goals and will help you to create healthy financial habits.
Then you can start to start to stress less about finances and save more money for your future.