How to Live Below Your Means: Tips & Advice For Saving Money
One of the best tips I ever got was living below your means. But what does that even really mean? Today I will talk to you about living below your means, what that looks like in practice, and some tips for you to take away.
What does it mean to live below your means?
Well, there's living below your means and living within your means. Living within your means is defined by ensuring your expenses are equal to or less than the amount you bring in.
Living below your means just means that your expenses are less than your income.
How to know whether or not you're living above your means?
1. You don't have an emergency fund
There are a lot of indicators. The first is that you don't have an emergency fund. An emergency fund is money set aside for emergencies or unexpected expenses. The goal is to have three to six months of essential living expenses in an emergency savings account. You can start small with a $1,000 savings fund.
2. You have credit card debt
Credit card debt is expensive, especially with a high-interest rate. If you're using credit cards, make sure you pay off the balance monthly. If you only pay the minimum, it could take months, sometimes even years, to pay that balance off.
3. You're not saving 10%
Another sign that you're living above your means is that you're not saving 10% of your income. One of the best ways to save money is by saving 10% of your income from every pay period.
4. Purchasing big ticket items when you can't afford them
Another sign that you're living above your means is purchasing big ticket items despite your finances. If you're purchasing big ticket items, you're having a hard time paying them off, and you're living paycheck to paycheck, this is a definite sign that you're living above your means.
How can you start living below your means?
1. Create a budget
The first step to living below your means is to create a budget. Having a budget is critical to know how much money is coming in and what is coming out from your expenses. There are many different ways to make a budget, and some of the most popular methods are the cash envelope system and zero-based budgeting using an Excel spreadsheet or apps.
The most important step is to have a budget that you could actually stick to, so make sure you're realistic about it.
2. Have a financial plan
The next step is to have a financial plan. A financial plan is a plan that lays out how you will achieve your financial goals. These financial goals can vary from person to person.
3. Live a frugal lifestyle
Another tip to living below your means is to start a frugal lifestyle. This could be purchasing clothing items or electronics pre-owned or used up. Another way to be frugal is to start couponing whenever you go to a grocery store or buy things in bulk. Other ways might be downsizing into a smaller home so that you can have smaller amounts of payments towards your mortgage or rent. Another way is to sell off items you don't need so you can have extra income.
4. Cut back on eating out
Another way to live below your means is to reduce the amount you spend eating out. For example, if you're eating out a few times a week or grabbing coffee every day, try to reduce your spending. You can try brewing your coffee, cooking meals at home, and packing lunch for work, or just eating out every few weeks as a little treat for yourself.
5. Don't try to keep up with the Joneses
Another way for you to live below your means is don't try to keep up with the Joneses, the Smiths, the Hiltons, or whoever it is. Resist the temptation and the pressure to have the same materialistic things as others to impress them. You might be able to use credit cards and loans to fake your wealth for a short time, but this will catch up to you, and you'll have to pay for it in the long run.
6. Pay cash for purchases
Another way to live below your means is to save up for purchases instead of using credit. People often use credit cards for large purchases such as TVs, electronics, designer purses, or furniture. Instead of paying for these purchases on credit, try to set aside money every month so that you can purchase these outright. If you can't afford to save up for the purchase, you can't afford to buy it.
7. Shift your financial mindset
The last and most important tip to living below your means is to shift your financial mindset. The reality is what you find important will have a big impact on your lifestyle, your finances, and how you live your life. If you feel like you need the latest things like designer brands,
expensive cars, and a bigger house, then unless you make a ton of money, you will always be striving for that next thing. Part of living below your means is being content with what you have. Is what matters to you the most really a fancy car? Or is it financial freedom?
Live below your means
So what does it mean to live below your means? It means spending less than you earn. It means not relying on debt to fund your lifestyle. It means working hard to ensure you and your family are set up for financial freedom. Make sure that you shift your mindset and make living below your means a goal so that you can start achieving it.