What does ‘live below your means’ imply?
Simply put, to live below your means implies spending less than you make while saving and investing the difference to get ahead in life.
This contrasts sharply with the prevalent, credit-hungry worldview, which fails to perceive income as a strict limit on how much one may spend.
What’s important to remember is that living below your means does not imply you can’t have fun and live luxuriously.
In fact, if such things accord with your values, you should make it a point to accomplish them.
The goal is to not put your financial future in jeopardy in the process.
This is planning ahead of time for fun activities rather than putting them on your credit card and then dealing with the consequences later.
Indications that you are Living Above Your Means
It is good to look at what it doesn’t look like to live below your means to help understand this concept better.
There will be several signs when you are living above your means.
i). You are likely to save very little or none of your earnings
If your way of life prevents you from saving even a little portion of your salary, you’re plainly living over your means.
Remember that you will be unable to work at some point. It is your job to put money aside for that time during your working years.
ii). Getting by from paycheck to paycheck
You’re in a bad situation if your wage is the sole thing keeping you from defaulting on your bills.
You should always have a cash cushion to protect you from financial difficulty, which is impossible if you live above your means.
iii). Having an outstanding credit card balance
A large credit card bill is incompatible with the concept of living below your means.
After all, you wouldn’t need to use credit if you could genuinely afford such things. That’s all there is to it.
iv). More than 25% of your salary is spent on housing
Traditional mortgage lenders, according to the US Consumer Financial Protection Bureau, consider between 25%-28% of income to be the highest amount that may be comfortably spent on housing.
If you spend more than that, you could be considered to be house poor, which is a classic sign that you are living beyond your means.
How to Live Below your Means
Yes, you can live below your means, and not feel like you are depriving yourself.
Living below your means entails more than just cost-cutting and money-saving.
It’s all about regaining control of your finances so they don’t dominate you.
When you live below your means, you have the ability to deal calmly with an unexpected medical bill or vehicle repair, save for retirement, and fund your aspirations.
A reasonable rule of thumb is to live on at least 15% less than your annual income.
I have included some recommendations to help you live below your means without feeling deprived.
1. Try to Save off the Top
Before you’re tempted, divert money from each paycheck.
Saving through 401(k) payroll deductions at work or regular monthly transfers to a savings or investing account becomes effortless once you get started.
Make a Payment to Yourself
When you’ve paid off something, whether it’s a smartphone, a car, or a college education, keep making your regular monthly payments, but direct them to yourself.
Put the money in a savings account that pays interest and let it grow.
You won’t feel deprived if you pay cash the next time you want to buy something.
2. Reduce Non-essential Spending
This is a good way to live below your means.
Are you eating out too much, watching boring cable channels, or paying for memberships you don’t use?
Eliminating non-essential expenses frees up funds for activities that you genuinely like.
Make a list of things you value in life. Then take a thorough look at your recent financial accounts.
Are your purchases in line with your values?
3. Drive Used Cars
Do you really need that brand-new car with a $550 monthly payment that loses 20% of its worth as soon as you drive it off the lot?
When you buy a used automobile and pay cash, you avoid the stress of an auto loan, as well as the extra costs of car ownership.
Keep in mind that your car is merely a mode of transportation.
Do you see this as a good way to live below your means?
4. Develop a Financial Strategy
The act of giving each dollar a work may be empowering.
The popular 50/30/20 budget divides money into needs, wants, savings, and debt payback categories.
Make your monthly financial decisions in the privacy of your own mind, or with your partner, in advance.
Avoid doing it in the heat of the moment.
This way, you may feel wonderful about your expenditures even in the long-run.
5. Spend from Only One Income
Many dual-income households budget their lifestyles based on the money earned from two or three jobs.
Consider the advantages of making the purposeful decision to live on one paycheck.
Organizing your household costs so that only one person’s pay pays the bills, if possible, affords tremendous financial independence.
Set aside the second paycheck for retirement savings, investing, or debt repayment.
It also allows for flexibility in the event of unforeseen life circumstances such as a job loss or having one parent stay at home with young children for a period of time.
6. Pay a Lower Interest Rate
Consider combining your debt to save money on interest if you have balances on high-interest credit cards.
You can be qualified for a debt transfer credit card with 0% interest for 12 months or longer if you have strong credit.
Just keep an eye out for transfer fees and only transfer as much as you can afford to pay off before the introductory period ends and the rate increases.
Alternatively, you can refinance with a low-interest personal loan from a bank, a credit union, or an internet lender.
With less interest to pay, you’ll be debt-free sooner and able to focus on more important tasks.
7. Ensure your Home is the Right Size
Refrain from purchasing the most expensive home that the bank thinks you can afford.
Instead, purchase a little fixer-upper and make it your own.
That way, you can enjoy your house without worrying about the costs of homeownership, such as insurance, taxes, and upkeep.
The Advantages of Living Below Your Means
When you live below your means, there are varied benefits that come a long.
1. Less Anxiety and Stress
Have you ever had a case of buyer’s remorse?
When you live on a shoestring budget, you nearly never get to experience it.
When you live on a budget, every dollar has a purpose, and every purchase necessitates thought and planning.
When you know how much money you’ll be getting each month, you’ll need to be disciplined with your spending to stay inside that budget.
With such discipline comes a pleasant surprise: a decrease in stress.
This month, you won’t be up at night wondering where your money went. You won’t be concerned about the time between now and when you’ll get paid.
Monthly living expenses such as water and electricity will not even come close to breaking you.
2. The Capacity to Create Wealth
“I wish I had more money,” have you ever thought to yourself?
Living below your means is the most effective approach to do so.
It may sound self-evident, but if you don’t spend every dollar you earn, the money you don’t spend accumulates.
Then, instead of wanting for more money, you’ll be pondering where to invest the money you already have.
You must have money to invest and expand in order to be affluent.
And you must spend less than you earn in order to have money. It’s a straightforward concept, yet it’s one of the most significant advantages of living below your means.
3. Your Credit Score isn’t as Important as you Think
This is a very good thing to put in mind if you desire to live below your means.
People seem to want to give you “financial advice” everywhere these days, and the most common piece of advice they want to give you is to improve your credit score.
But what happens when you live within your means, stop taking on debt, and take charge of your finances?
Your credit score is becoming less and less important.
Because a credit score isn’t required to purchase anything you can genuinely afford.
Simply pay cash if you want a new automobile and can afford to buy it outright.
You don’t need to talk to a bank if you want to renovate your kitchen and have the funds; all you have to do is pay for a new kitchen.
There is no requirement for a credit score.
Living below your means, saving, and paying cash for the items you desire puts the power of your credit score back in your hands.
That is exactly how it should be.
4. Increased Financial Self-Assuredness
I was absolutely lacking in financial confidence before I took control of my spending habits and began living below my means.
My bank account, for example, was devoid of commas. I was a scrooge when it came to money.
After years of living below my means, I’ve gained a lot of confidence in areas such as saving, budgeting, tax preparation, investing, and overall financial decision-making.
I’ve gotten quite skilled at saying no.
I don’t listen to folks who are secretly in debt tell me how to manage my money. I conduct my own research and make judgments that I am convinced will help my family’s financial future.
You’ll be astonished at how confident you get in managing your personal finances once you start reaping the benefits of living below your means.
Who knew that living frugally could lead to such confidence?
5. Debt-Free Living
For a long time, I believed that living below my means simply meant that my monthly payments had to be lower than my monthly income.
The problem with this way of thinking was that it encouraged me to take on debt I couldn’t afford.
Living below your means entails just purchasing items that you can afford to pay for in full.
That means you won’t have any loans or credit card debt. It’s all about cash.
Now, you might think that sounds uninteresting and a little insane when you first read it.
But I can honestly say that receiving a paycheck without having to deduct monthly payments is amazing.
It’s wonderful to see your bank account grow rather than diminish.
It’s thrilling to get into an automobile that you own outright.
It’s also wonderful to know that as long as you live within your means, you’ll never have to worry about paying off debt. Ever.
6. Increased Freedom
The independence that comes with living below your means is one of the best aspects of it.
You can pursue your passions, plan trips, or quit that job you despise when you aren’t burdened by heavy debt and bad spending habits.
Spending more than you earn has the effect of tying you to your current lifestyle.
How many people have you encountered in your life who are stuck in a job they despise because they have too many monthly costs to cover while pursuing a better job?
How many families have never been on vacation because they purchased a home they couldn’t afford?
And how many individuals are willing to give up their retirement for a new automobile that costs $550 per month?
Living below your means frees you from the shackles of debt and allows you to live the life of passion and purpose you’ve always dreamed for yourself.
7. Financial Protection
Two amazing things happen when you learn to live below your means.
To begin with, and maybe most obviously, you don’t need as much money to live.
Your propensity of overspending fades away, your expenses decrease, and your financial situation gets more straightforward.
Second, as your expenses decrease, your ability to save money increases, resulting in a large, lovely pile of cash.
The two items work well together.
Your savings grow as a result of your lower spending, and the success you see in your savings motivates you to eliminate even more expenses.
It’s a fantastic cycle that gives you a huge degree of financial security and prepares you to deal with unexpected expenses like losing your job or unexpected medical bills.
Furthermore, major expenses like a new home, cars, weddings, and college become much less daunting.
Financial security is a good thing to have, and living within your means is the first step toward it.
There was a moment in my life when the only financial talent I had was the ability to spend money.
To be honest, I only ever saved money so that I could spend it on anything I desired, but there was always the nagging feeling that there was something else to do.
I found that the more money I spent, the more money I desired to spend.
I was living beyond my means, my finances were a mess, and I was never satisfied. It was a never-ending and disappointing circle.
Living within your means, spending less, and focusing on your financial well-being can lead to financial contentment, which may seem counterintuitive.
An addiction to spending money, like any other addiction, can’t be satisfied by anything.
You won’t be able to purchase your way to happiness.
However, if you stop trying to keep up with the Joneses and instead focus on financial simplicity and learning to live below your means, you will discover just how lovely and meaningful your life is.
9. A Healthier Way of Life
When you start living on a budget, you must be deliberate about things like food and recreation.
On most occasions, this leads to a healthier way of living.
You’ll find yourself cooking more healthier meals rather than eating out.
Or, since you want to get the most out of the money you spend on your gym membership each month, you might find yourself exercising weights after work instead of going out for drinks with coworkers.
It’s difficult to be thrifty and diligent with your money while failing to improve other aspects of your life.
Consider it a perk of living frugally.
Conclusion on Living Below Your Means
I can tell you for you that you can live below your means and not feel deprived.
You may simply begin to live below your means with the appropriate budgeting methods, money mindset, and financial preparation.
You can even make it more enjoyable by taking part in a money-saving challenge with a friend and helping each other stay accountable.
Start living below your means, and your bank account will increase faster than you ever thought.