Many people get caught up in the cycle of needing the newest gadgets, trendy clothes, and luxurious experiences. But what if there was a way to live comfortably and still save money? Prioritizing financial stability can help improve your financial situation and give you peace of mind. Here are practical tips for living below your means without compromising your happiness or quality of life.
What does it mean to live below your means?
Living below your means involves keeping your expenses lower than your income. It’s about being mindful of your expenses and making smart choices to save money instead of overspending.
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What is the monetary definition of living below your means?
The monetary definition of living below your means is spending less money than your total income. The ideal amount can vary depending on individual circ*mstances, such as income level, financial goals, and the cost of living in a particular area. A good rule of thumb is to save at least 20% of your income.
12 Tips on how to live below your means
Here are useful tips to help you live below your means.
1. Create a budget
Creating a budget helps you keep track of how much money you have coming in and how much you’re spending. First, figure out how much money you make each month from your job or other sources. Then, make a list of all the things you spend money on, like rent, bills, groceries, and fun activities.
Next, you can choose a budgeting style that works for you, like the 50/30/20 rule or zero-based budgeting. Once you’ve decided on your budget, make sure you stick to the spending plan. Most importantly, don’t spend more money than you make.
2. Track your spending habits
To effectively track your spending habits, start by keeping a record of all your expenses using a budgeting app or a spreadsheet. Sort your expenses into different categories, like groceries, entertainment, and bills. This helps you see where your money is going and find areas where you can save.
3. Eliminate unnecessary expenses
Analyze your spending patterns and identify things you don’t really need. Maybe it’s eating out too much or paying for subscriptions you don’t use. Once you identify these expenses, gradually cut back on the extras until you eliminate them altogether.
4. Set financial goals
Having clear financial goals gives you direction and purpose in managing your money. Start by thinking about what’s most important to you financially, like paying off debt or saving for something special. You may break your big goals into smaller ones to make them easier to achieve.
5. Reduce outstanding debt
Debt repayment could improve your financial health and give you more control over your money. To tackle your debt, you need to figure out how much you owe on each debt. Start by paying off the smallest debt first and then move on to the next one. This helps you stay motivated as you see your debts getting smaller.
6. Save for an emergency fund
Emergencies can come up at any time, like sudden medical expenses or losing your job. Having an emergency fund will prepare you to handle unexpected situations. You can set up automatic transfers from your checking account to make it easier. Keep the fund separate in a savings account that you can easily access when you need it.
7. Decrease credit card usage
Reducing credit card usage helps you avoid getting into too much credit card debt and encourages smart money habits. Understand what makes you use your credit card so much, like impulse buying or not having a budget. Then, set a limit on how much you can spend with your credit card each month and stick to it. Instead of using your credit card for everyday purchases, you could try using cash or a debit card.
8. Negotiate rates and bills
Negotiating is a useful skill that can save you money and lower your living expenses. Before spending money, do some research and compare prices to know what’s fair. Then politely ask whether there are any discounts available. You might be able to get the discount, a special rate, or bundle services together for a better deal.
9. Build multiple sources of income
Relying solely on one income can be risky, as circ*mstances can change unexpectedly. You could use your skills and interests to freelance or start a side business. You may also take advantage of platforms like Uber or Airbnb to earn extra money. Having multiple sources of income may take time and effort, but it can give you more security and flexibility in the long run.
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10. Right-size your home
It’s normal to feel attached to your home, but remember the benefits of finding a more suitable and affordable place. Right-sizing your home means finding a living space that fits your needs and budget. You may consider downsizing to a smaller home or moving to a cheaper area.
11. Drive used cars
Used cars are cheaper than new ones, so you could get a good vehicle at a lower price. Buying a car that’s a few years old instead of a brand-new one can save you money and still give you a trustworthy ride. Just remember to research, check the car’s history, and have it inspected before buying.
12. Be mindful of lifestyle inflation
Before buying something, think about how it will affect your long-term financial situation. Instead of increasing your spending, save or invest a portion of any income increase. For instance, if you get a raise, consider putting some of it aside rather than spending it all.
Benefits of living below your means
Here are some of the best reasons to live within your means and budget.
Financial security
When you spend less than you earn, you build a strong foundation for your finances. It also lets you save for things you want in the future, like buying a home or going to college. This helps you grow your wealth and face financial challenges with strength.
Debt deduction
Large amounts of debt can put a drain on your finances. Living within your means can free money to pay off your existing debts and avoid getting into more debt.
Reduced stress
Once you learn how to handle money wisely, you won’t have to worry as much about financial problems. Instead of constantly worrying about money, you can focus on enjoying life and planning for the future.
Increased flexibility and freedom
By avoiding an extravagant lifestyle, you won’t be stuck with too many financial responsibilities or living paycheck to paycheck. Saving and investing become possible, leading to more financial independence.
Embracing financial freedom
Society constantly tempts you with things you can’t afford, so you need to recognize the risks associated with living beyond your means. With good money management, you can save more money, secure your future, and lead a happier life.
FAQ
Can you still enjoy life while living below your means?
You can still enjoy life while living below your means. Living below your means doesn’t mean sacrificing enjoyment in life. It’s about making conscious choices that align with your values and long-term goals.
How can you handle social pressures to spend beyond your means?
You can handle social pressures to spend beyond your means by setting personal boundaries. Focus on alternative ways to connect and have fun without excessive spending.
How can you make saving money a habit?
You can make saving money a habit through discipline and consistency. Set specific savings goals and create a budget that includes regular savings contributions.
Written by Anna Yen Anna Yen, CFA, has nearly 2 decades of experience in financial markets, primarily with JPMorgan and UBS. Currently, she manages digital assets and her goal at FamilyFI is to empower families with financial literacy. She’s worked in 5 countries and visited 57.
