or those who want financial independence, living below your means is a must. But that's not just about learning how to save money, cut expenses, and live a frugal life. There are other things to help you live on less money. You'll learn those here.
With things getting more and more expensive, living on an even tighter budget is difficult, if not impossible.
I hear you. My wife and I (and our family) have been there before. I'll tell you that it's not for the faint of heart. You'll be surprised you're not alone. You'll be shocked that 58% of Americans have less than $1,000 in their savings.
There were times that we wanted to quit budgeting and almost stop learning how to make a budget because nothing seemed to work.
But we persevered, pushed through, and made impossible things happen. Those made the difference.
If you're in the same boat as we were, I'll tell you that there are ways to get out that situation. I know we did, and you could, too.
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:
What does it mean to live below your means?
To “live within your means” means that you spend less than what you make. For example, you spend $40 every month while you make $100 per month. For many, living this way isn't as easy as it sounds.
With credit cards debt, growing expenses, among others, it is easy to spend over what you normally make, but there are ways to live within your means (see information in the succeeding sections).
The basics of learning how to live below your means
Before making changes to your finances, it's best to focus on the foundation on what it takes to start living on less money
Here are they:
1. Know how much you make
The first rule of living 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 budgeting hacks to help you make your budget work for you.
From here, you can try to figure out which expenses to cut and learn how to live cheap.
Here are some tricks to help you cut your bills, which in turns, will help you in living 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 money. You can also use apps like Trim and Charlie – AI financial tools – to automatically help you with lowering your bills. See more bill negotiation apps here.
- 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 to find other ways on how to save money.
3. Boost your income
When things come down to the wire, and you don't have enough to save 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 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. Learn how to improve credit score of yous here.
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.
6. Define your needs and wants
There's always a gray area between needs and wants. =
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. Check out Dave Ramsey's baby steps for great information on living based on your need.
Here's a secret:
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.
7. Don't keep up with others
It's very common for people to grab the latest gadgets because there's a reason for that and brain science explains that.
The lesson is to resist the urge of keeping up with what other people have. If you want to be in a state where you're living below your means, then, don't keep up with others.
You won't suffer (I think you won't) if you don't have what other people have. If you don't have the latest iPhone, it doesn't make you less cool.
Living on less money means not keeping up with the Joneses.
The dangers of living above your means
Living above your means signifies one thing, that is, your income exceeds your expenses.
Here are some adverse effects of being in that state:
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.
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).
Warning signs you're living beyond your means
So, how do you exactly know if you're going overboard? That's a great question with a lot of answers.
Here are they:
FYI: If you're a millennial, read this article to learn why you can't have nice things and save money.
1. You carry a credit card balance (a big one)
If you find yourself with a huge credit card balance, chances are you are not living on less money. You may be living above your means.
There may be exceptions to that like medical bills, and other emergency expenses.
You should also start carrying cash instead of cards. When the money has run out, then, that means you don't have enough money to pay for other expenses.
2. You've never set a budget (or at least never followed it)
Budget is always a must for those who want to be on a sound financial track, personal financial independence, and debt-free lifestyle.
If you want to be living below your means, then, you need to set financial parameters you can follow to a tee. Stick with those no matter what your situation is. It's called discipline and perseverance.
Here's more information on how to budget:
In certain situations or occasions, you may use the following:
3. You don't have any money left by month's end
People who live paycheck to paycheck often think they can't spend less or live on less money because their way of life has become a necessity.
There are ways to cut your expenses, and ways to get what you need/want for free sometimes.
When you are in this kind of situation, one useful thing you can do is to start cutting all your wants and satisfy what you need.
From there, watch what you spend and make sure that you zero out (on your budget) everything that falls under the ‘want' category or most of it.
4. You're not getting the full-match of your employer's retirement benefits
A lot of companies are now offering a match-up contribution. Many of them will match what you contribute up to a certain amount or percentage. On average, companies contribute 4.7% in 401ks.
For example, your XXXX company matches up to 5% of your pay. If you're contributing $100 every paycheck, which is 5% of your salary, then, your company will contribute $100 towards your retirement account.That means the money your company contributes is free. Since that will be invested in the stock market, then, money would grow in the future.
If you're not putting the maximum contribution to get the max contribution from your company or even contribute a small amount per paycheck, then, you're missing out free money. Also, it means that you're living above your means.
What can you do? Give priority to long-term gains than short-term wants. You can cut back on eating out so you can save money and contribute to your retirement account.
In this case, living below your means only signifies that you're putting your future ahead of your present.
5. You let others dictate your spending
A lot of us like to stay on top of the newest and greatest products. We want to be the talk of the town for just about anything.
Some of us fear of missing out of fun social events due to financial constraints.
In short, we let others dictate what we spend our money on.
While it's not bad to allocate funds towards entertainment, putting this expense as a priority can create financial troubles along the way.
It's best to take a great look at your motives for spending and find better alternatives to get quality time with your friends/social circles.
6. You've paid overdraft fees
This is a clear signal that you're living above your means.
If you've been paying your bank those pesky overdraft fees, then, you're definitely going over what you have in your bank account.
To avoid getting charged with these fees, make sure you don't go over what you have in your account. Best, use cash on all or almost all of your transactions.
You can use the envelope system of budgeting to keep track of your money. That's the simplest form of budgeting that even the most novice budgeter can use with ease.
How can I live off less money?
There are several, easy ways you can do to live off less without depriving you of things you need. You can start some of them now. Here are they:
- Look for used things first. Whether it is used cars or gadgets, try to look for used things before buying ‘new' ones.
- Cut back on entertainment. It's good to have fun from time to time, but do not allocate a lot of money to it.
- Rent than own. Instead of living in a house all by yourself and paying a mortgage, you might consider renting first before buying a house. Better yet, find a roommate that can share expenses with you.
- Get a smaller house. If you find the need to buy your own house, buy one that's smaller but one that still allows you to feel home and gets you to do everything you want.
How to live below your means: Conclusion
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 above means is something that can be avoided. 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.
Do you think that living below your means is possible? Do you think living above means is sustainable? What have you done to ensure you live within your budget?