For those who want to achieve financial independence, living below your means is a must. But that's not just about learning how to save money, cutting expenses, and living a frugal life.
With things getting more and more expensive, living on an even tighter budget is difficult, if not impossible. But there's one thing that can be done easily, that is, by learning how to live below your means with things I'll discuss below.
You don't have to sacrifice and be deprived to turn things around.
All it takes is to learn ways to get into the mode of living on less money.
If you are ready: Read on and start this frugal living!
TABLE OF CONTENTS
The basics of learning how to live below your means
1. Know how much you make
The first rule of to live below your means is to know how much you make accurately.
You need a budget template to jot down your income. Don't just rely on your memory to get that answer. It's best to have everything written down.
You need to know what your net income is, and what other sources of income you have (e.g., even including passive income).
You also need to know when you get paid to identify the timing of paying bills and receiving your income.
Since most bills are due monthly, you should know how much you get paid every month.
2. Spend way less money than you bring
When you know how much your income is, it's now the time to figure out how to spend less money so you can start living on less money.
This is where your budget template can come in handy. If you've tried budgeting before and it didn't work, make some tweaks and try again.
Here are some tricks to help you cut your bills, which in turns, will help you to live below your means:
- Cut services you hardly use. You'll find things like cable and unlimited cell phone data plans that you barely use. You can negotiate them down (price-wise) or cut them off to save extra money. You can also use apps like Trim and Charlie – AI financial tools – to automatically help you with lowering your bills.
- Consolidate your debt. When things get tough, and debts are piling, one great way to reduce interest payments and other fees is to use products like Tally, SoFi, and Prosper that offers lower interest rates for personal loans. The less interest you pay, the faster it is for you to pay off your debt.
- Cut down on grocery. Americans spend between 9% and 12% of their budget on food. It's a big chunk, but there are ways to save money on groceries. You can use apps like Ibotta, Checkout51, and Ebates to get cashback on your everyday purchases.
Click here for some other smart money moves you wish you knew before.
3. Boost your income
When things come down to the wire, and you don't have enough to save more money, let alone cover your expenses, it's now the time to find a source of income.
Whether it is a passive income or a part-time job, it's best to get a job that can help you earn extra money on the side.
You can do it temporarily while trying to meet your needs, pay off debt, among others. Or you can continuously do it even after all the financial woes are done, so you have a little buffer.
The key is to have more income than expenses. Once everything is in steady-state, then, you can start to cut down on expenses little by little.
Here are some ideas to help you get started with earning extra cash so you can start living way below your means:
- Find a part-time job. Whether it's a home-based job or not, look on sites like Indeed and Monster.com to see what available part-time jobs that suit your schedule.
- Get a side hustle. While you're working on your part-time gig, you can also work on some online side hustles to put some money in your pocket. Some of the popular ways are getting paid to do surveys from Survey Junkie and Swagbucks, blogging, and freelancing (if you have specific skills like writing that people need help with).
4. Never use your credit cards unless and until
Credit card fees and interests are culprits as to why people end up burying themselves in debt. Believe it or not, 55% of Americans are in debt (mostly credit card debt) amounting to over $5,000 for some.
Even when credit cards can save you from your day to day expenses, you are digging a deeper hole if you're not paying your balance in full.
The first lesson here is only to use your cards if you can pay them in full when they're due. Second, you need to stop using them until you've paid off what you owe.
As much as possible, use cash for any transactions you may do. That's the key to on how to live below your means.
But, the problem of having too much debt doesn't stop there.
With a high ratio of debt to income, your credit score will tank, and you'll have a hard time getting access to better loans, rates, and other financial opportunities.
Where do you go from here? Start with checking your credit score for FREE with Credit Sesame and Credit Karma to see how much you owe and to whom.
From there, you can start working on ways on how to pay off credit card debt and other debt you may have.
5. Build up your emergency fund
Here's a fact: Nearly three out of 10 Americans don't have an emergency fund. That's a shocking statistic.
That problem could branch out to other issues. For example, if your car needs a new engine, and you don't have money, then, you're more than likely to use your credit cards.
By not paying your credit card in full, then, you're putting yourself into a more financial problem. What if you get into a medical emergency and need money?Your financial problems will continue to pile up without an emergency fund in place.
How to get into the cycle of saving for emergencies? The answer is to put a wedge in your budget for that purpose and stick with it. Cut back on some expenses, and put money towards that budget category.
You can also use a personal financial app called Qapital to help you save much money based on your goals and rules that you set for yourself (with little to no effort). Click here to use it.
6. Define your needs and wants
There's always a gray area between needs and wants. A need is basically something you cannot live without like food and shelter. A want is something that you like to have.
If you want to know how to live below your means, then, the best place to start is figuring out what you need and put some of your wants on hold for now.
Doing this can be difficult, especially if you're used to living a lifestyle filled with wants.
Sustaining yourself from day to day while reaching your financial goals is done by building a budget that balances between what you need and what you want.
That's why it's best to not completely take away the “wants” in the equation, but keep them at minimum for the foreseeable future.
The dangers of living above your means
1. You can't catch a break
Sure there may be a fun part of buying things you like, whether it is the next smart TV or a trip to a remote island.
But the reality is when you are living way above what you're capable of financially, you can't catch a break with paying your bills.
In short, your bills are spiraling out of control. Since you're expending more than you're making, chances are you're using debt to keep your lifestyle going.
2. Your lifestyle isn't unsustainable
Speaking of lifestyle, when you're living above your means, and you continue to do that, your lifestyle will be unbearable.
You may have stashed and/or inherited a sum of money, but the reality is, when your expenses is more than your income, you'll find yourself in debt sooner or later (unless you stop and make changes).Sure, you may argue that you're spending more money because your income goes up anyway or what is called lifestyle inflation. That could be a valid argument.
That said, if you spend more money more than what you earn, then your lifestyle will still be unsustainable.
3. You may live to impress others (but in a wrong way)
It's may always be nice to have the latest and greatest products in the market. You may always be the talk of the crowd, and people like to talk about you and how great you are. Those may be good (to a certain extent).
But if you're living way above what you are capable of affording, you maybe impressing people too much and hurting yourself/others in the process.
Many people may look upon you as their inspiration, idol, or something, but in reality, you're in deep financial woes.
Believe it or not, the reality will catch up on you and people will notice (until you put a stop on it, and make the change to start living on less money, paying off debt, building wealth, among others).
Conclusion: Live Below Your Means
It's never easy to change one's lifestyle. But it's even challenging to be in a debt situation that breeds more problems than solutions.
Living below your means is possible. It may not be easy to do it, knowing that temptations are around you. That said, living on less money is doable and preferred if you want to achieve financial independence, financial freedom, or a debt-free life.
