You can drastically improve your financial situation and reach your goals by learning how to live below your means! It’s actually where the magic is!
Living below your means is really about adopting a lifestyle that maximizes your money and actually makes the money work for you, and then some. It will also help you become more aware about your spending or financial habits.
It sucks sometimes to review your financial situation, especially if you made missteps or didn’t always budget correctly. But holding up the mirror to your face so you can get real with yourself, is exactly what you have to do to maximize your money!
Living below your means gives you an opportunity to hold on to more cash, save more, invest more. You’re just legit able to do more! Here’s an example:
If Person A makes $100,000 per year (before taxes) and lives a lifestyle that costs $95,000 per, he/ she is only left with $5,000 for the year.
But if Person B makes $65,000 a year (before taxes), and lives below their means with their lifestyle costing $50,000 instead, he/ she is left with $15,000 for the year.
You see how even though Person A made more money per year upfront, their choice to live an expensive lifestyle is costing them a big portion of what they make. Person A is only left with 5% of what they make, while Person B is left with roughly 23% of what they make (again, before taxes are considered!).
Now, keep in mind this is a rough example to help you understand how your choices and habits contribute to your overall financial situation. By living below your means, you can start to really strive and reach for those big financial goals.
Again, you will be able to save more money, have increased cash for emergencies and you can even invest. The possibilities are limitless once you cut out the crap and get serious with your finances!
So here are 10 hacks to living below your means so you can reach your financial goals and dreams!
Eliminate Random Expenses
Okay, so it is definitely time to unsubscribe or cancel the free trials you signed up for but, probably forgot to cancel. And, now you’re stuck with a monthly bill you don’t want or need…you know, those expenses.
I would be lying if I said I still don’t fall for those “traps”, but I definitely do. No worries, it happens. But now’s the time to find them and eliminate them.
I would suggest using apps, such as Mint to help you identify and track these random expenses. Or honestly to keep it simple, just be sure to check your checking your saving accounts frequently. This will help you quickly spot transactions or expenses that you a) weren’t aware of or b) you don’t want anymore or c) a combination of A & B.
You can also use this opportunity to review any minor expenses that you no longer need. This will inevitably force you to go deeper into yourself and figure out why you even thought you needed it.
For me, it was my cherished, and beloved daily run to Starbucks. Man, I loved having a hot Caramel Macchiato on those cold, brisk days days and a Mocha Frappuccino on the hot and humid days. But these were expenses that weren’t a part of any budget I had in place (at the time).
I had convinced myself that it was just a treat but those treats quickly added up. It was becoming a bill, and that had to stop!
And this isn’t to say that you can’t do your daily runs to Starbucks (if that’s what you want AND can afford), but I want to point out that we all have them. We all have our own version of Starbucks Run.
Find yours and get rid of it!
Make Savings A #1 Priority
Your savings is probably one of the most important aspects that makes up your financial situation. Having money stashed away truly provides peace of mind for unexpected emergencies and gives you more resources to invest/ play with. Don’t believe me?
Now, there are many systemic and institutional factors for why some people may not be able to live below their means or save more, but I won’t go into detail about that here for the purpose of this post.
I wanted to highlight that to remind you to make saving money a priority in your life. By developing consistent habits that forces you to put money away every time you you receive it, you can start to work or operate your lifestyle on less money.
Living below your means gives you more money to use in other aspects of your life. But the point is to save aggressively and to save money first, before doing anything else.
Every time you get paid or receive money, try saving at least 5-10% of the money first. Then designate the rest for your bills and expenses. Doing this will help your mindset shift and make saving money the priority it should be.
Plus, you will be extremely happy when you see the balance in your savings account grow a lot faster than it ever did before.
Say Goodbye To Big Purchases
It can be hard to stop spending, especially when everyone around you is doing so, but it is definitely worth it if you want to live below your means.
You can’t continue making big or expensive purchases if you’re attempting to live below your means. Living below your means literally means to live on less. So I’ll say it now: less is more.
So instead of spending money on large purchases, of which you probably don’t actually need, re-purpose that cash for other things such as increasing your savings, decreasing debt or investing.
Honestly, the possibilities are truly limitless if you can get your spending in control.
So, I recommend to start with your budget. If you don’t know how to create a budget or want to brush up on the must-haves, you should read my post here first then come back here to put it into perfect context.
Everyone will define major purchases differently, which is normal. But every person should know what the max amount of money they would be comfortable spending at any given moment. And that too will be different for each person.
I know that for me, anything over $200 would be considered a major purchase. It’s changed over the years but it’s kind of always been at that sweet spot more or less. It’s my feel good number. I know I can easily get to the cash and I also know that I won’t hurt if I spend it.
I understand that may be a lot for some people and for others, it may be very little. Doesn’t matter. Just find your number and what works for you, and stick to that.
Related: How to Create A Budget: 5 Steps For Beginners
Stick With A Monthly Budget
Like I mentioned earlier, having a budget in place is a really good rule of thumb to remain in control of your financial situation. Make sure you follow your budget that you’ve created and that you review it periodically.
This doesn’t mean you have to watch every transaction in your account. That’s draining and honestly very unrealistic. Instead try to review your budget and your progress at least once a month.
This gives you a chance to make adjustments to the budget if you need to and gives you some flexibility. It will also help you keep your spending under control throughout the month.
Often times, we temporarily ignore our budgets if it means we can get or buy something we really want.
Nope, not happening anymore! Reviewing your budget monthly helps you reduce the opportunity to splurge and reminds you of your goals.
So try to ignore what may appear as instant gratification, and get used to delayed gratification. It sucks at times, but trust me adulting will get a whole lot easier if you stick with this!
Ignore The New Trends
No seriously, trends have a way of pulling you in and making you want or feel like you need things, when that is far from the truth.
I have been on social media as both a consumer and entrepreneur for several years. I am constantly seeing new fads or trends that are being sold to us or consumers. It can be tough having so many things being thrown at you or advertised to you so much. But I’m here to tell you…
IGNORE THEM ALL!
We are constantly being pushed and influenced to make purchases or investments in products that we don’t really need or want. There is nothing wrong with the advertising or influence, but it can be really detrimental to give into it when you’re trying to live below your means.
So practice ignoring the hype and stick to your guns about your budget and your spending habits. Remember, establishing good financial habits is how you keep money in your pocket and actually accomplish your financial goals.
This is also a good time to point out that most of the time you don’t really need whatever the new trend is telling you to buy. But it’s been advertised in a way that makes you feel like you cannot live without it, whatever that it is.
But again. IGNORE THEM ALL! This is an opportunity for you to learn about what your real wants and desires, ones that make sense for you and your financial situation.
Find Affordable Housing
Keeping housing costs low can help you live below your means because you get to conserve funds in one aspect of your life and use it elsewhere.
According to CNBC, you shouldn’t spend more than 30% of your monthly gross income on housing.
Your gross income is your income before taxes, health, and or retirement deductions come out. So using CNBC’s logic, if your monthly income is $3,000, you should aim not to spend more than $900 for housing expenses ($3,000 x 30% = $900).
This rule of thumb is a great way to live below your means because it keeps your costs low. It reminds you that housing is important but it should not take up half of your income. You won’t have enough to cover all your expenses AND save, if you spend more than 30% of your monthly income on housing.
To be clear, I recommend finding affordable, but safe housing. I definitely do not recommend giving up safety in the name of the money so it is about finding balance where you live. You can check out these below if you’re on the hunt for new apartment or house:
This also leads to the next one which is to..
Maximize Your Raises & Promotions
A lot of people increase either the amount of expenses they have, or the price of those expenses when they get a raise or promotion. So let me tell you right now, you don’t want to do that!
Just because you are making more money, does not mean you should spend more money. It’s actually the opposite.
Every time you receive a promotion or bump in pay, you should try to decrease your expenses so you can maximize the increase in pay you received (can also apply to the housing tip above).
I see a lot of people work their way up to making large amounts of money, which is super impressive, but they throw it all away by spending more. They think, “Well, I make more money now this year so maybe I’ll get a bigger apartment downtown. It’ll be more but I can afford it now”.
You see how easy that was? We’ve all been there. Trust me, I know I have. But living below your means is all about making your finances work for you. You shouldn’t increase your expenses just because your income increased.
Doing so would mean your financial situation would never change. It would be pretty much the same, just higher values for income and expenses. No evolution, no growth. So it’s important to realize that just because you can afford something, does not mean you have any business buying it.
Simply put, the more you produce and the less you consume, the more money you will have, and the better off your financial situation will be.
Define Why You Want “It”
Suffering usually relates to wanting things to be different from the way they are.
Allan Lokos
I know I mentioned it before, but your why is extremely important when you’re attempting to live below your means. It’s important because you have to become honest with yourself on why you want things, whatever they may be (they are different for everyone).
Defining why you want something will help you establish and understand your relationship with stuff and with money.
When I reviewed my finances, I noticed there was often no real tangible reason why I wanted any one thing. Mos times I had just convinced myself I needed it when that wasn’t the case; I was just that used to spending money.
I had to get real with myself and realize that I was spending somewhat recklessly, and spending on things I didn’t care to have in a year, let alone six months.
So, in order to live below your means, you need to consider why you want anything, to be honest. This doesn’t mean you shouldn’t buy things. That isn’t the case at all! But the goal is to help you think critically about what it is you’re craving at any specific moment. .
I realized that I usually wanted something for one of, sometimes all three of the below reasons:
- Someone else has it (you can definitely blame social media on this one)
- We think it can be helpful (usefulness decreases over time)
- We have convinced ourselves its a part of who we are (tie the thing we want to our identity)
It wasn’t pretty but coming to this realization helped me I don’t need a lot of things I was willing to spend my money on. Knowing your why will help you reflect and get really honest about your financial situation. Honest enough that you can actually do something about it!
Use Coupons or Find Deals
If you want to get serious about living below your means, coupons and deals should be your friend, like your best friend!
Using coupons is a great way to save money and still get whatever it is you want or need! It does require some effort, but it means you will be able to save a few dollars, keep your budget intact and get creative with how you fund your lifestyle.
Don’t know where to find coupons and/ or deals?
Try reviewing your frequent spending habits and see if there are opportunities to save money there. Most organizations and brands offer loyalty and reward programs to help them increase their business by giving you discounts and promotions.
My boyfriend and I budget monthly for dining out, so we don’t go overboard (yay for sticking with that budget!)
Instead of just simply ordering from our go-to spots, I look for restaurants that may deals or offer free food delivery. We used a coupon this week that was emailed to me from Uber Eats that allowed us to save 20% on our order!
Now, we still spent the money, but by getting creative and being diligent with our budget, we saved 20% from our original order, which allows us more money to use within our budget. See how that works?
Practice Daily Awareness
Living below your means is a tool you can use to get in control of your financial situation and ultimately hit your goals.
In order to get your finances in control, I strongly suggest practicing being more aware of your money. What you do with it and how you use it to actually help enrich your life. This is important because you need to know what you’re doing, and why you’re doing it, especially as it relates to your finances.
Awareness will look different for each person and that’s it’s normal. We are all at different points in our life, in our financial life, so it makes sense that what works for some, may not work for you. Every person should establish what that awareness looks like to them.
I like to plug all of my spending (the transactions) into the EveryDollar app because it helps me stay mindful and aware. I could also review my checking and savings accounts separately, but writing down each time I spend money has helped me reduce my spending by at least 25%. It’s tedious but it works for me, and helped me control my spending.
Both are great ways to help live below your means!
Being aware will help you live below your means because it gives you the opportunity to make adjustments as needed. If you’re aware of your budget, your spending habits, and your financial goals, you will be less likely to make irresponsible or risky choices that forces you to live above your means.
Get Started Today
Living below your means does not have to be a negative thing either! It’s really meant to help you maximize how much money you hold on to and how to use it for things that really matter! Financial success will be that much easier to attain because you are now establishing the right habits to help you reach your financial goals. It can get hard but trust me, it is always worth it in the end to live below your means. to reaching your financial goals by helping you to establish good habits and routines. You got this!
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