Many people struggle with living below their means — I know my wife and I did for many years. We got caught up in the mindset that we could always save money later. In most of our 20s, my wife and I saved very little money because we wanted to enjoy ourselves as much as possible; perhaps too much.
In this post, I'm going to discuss ways to boost your financial future by living below your means. Whether you'll be living on a low income, living on a limited income, the key thing to remember is that you don't want to live beyond your means when you're living on less money.
The trick will be learning ways to save money and control your spending habits. Your monthly income will be lower with one income versus two, however, in the long run, this might be the right decision for you and your spouse.
Let's jump right in!
Benefits of Living Below Your Means
Before we go into the actual ways to live below your means, let's talk about the benefits. When you live below your means, you cushion yourself from financial hardship because you always have extra money each month.
Living below your means is a long term solution to financial issues because as long as you live beneath your means, you'll be able to pay down debts, save money, and invest for your future.
Living beneath your means doesn't necessarily mean that you're living on a very little income. Instead, it means that you're living financially smart because you make more money than you spend. This grows your net worth year over year and sets you up for having money in the future for the things in life you need and want.
This could include traveling the world, helping your kids through college, a dream home, or an early retirement.
1. Create a Budget
The first thing you want to do is to create a budget. When you create a budget, you enable yourself to set financial goals for the month. You can see where all of your money is coming from and where it's all going.
You may need to live on a tight budget at first, especially while you adjust to being on one income. You may decide to live frugally if you're not already.
My wife and I regularly revisit our budget to ensure we're saving enough each month and controlling our living expenses. Creating a budget is the best way to get started with living below your means.
Start by figuring out how much money you have each month by adding up your income sources. Many believe in the 50/30/20 rule, which states 50% of your money should go towards Needs, 30% to Wants, and 20% should be saved.
Check out this post for a detailed guide for creating a budget. By creating a budget, you're on your way to living below your means because you'll always know how exactly to spend your money going forward. Additionally, you can also create a budget as if you have a low income.
By creating a low-income budget, you'll maximize your savings because while your income may not be low at all, you'll act as if it is, forcing you to cut back all around. By pretending to be broke, you'll bank more and more money aside monthly.
Related Post: Can't Stay Under Your Budget? Try These 5 Strategies
2. Track Your Spending
After you've created a budget, start tracking your spending. When you make a monthly payment to your rent, mortgage, utilities, and other regular bills, write down the amounts. By tracking your spending, you'll see exactly how you're spending money each month.
At the end of each month, add up all of your spending, and identify where you can cut back. If you can cut your spending each month on specific things, you'll have more cash to save or allocate towards debt, such as credit card debt.
For example, if you're spending a lot on going out to eat, you could curb your spending by going out to eat one less time per week. This could save you over $100 per month alone, putting that extra money in your pocket for other use.
Things to track your spending on include:
- Grocery bills
- Utility bills
- Entertainment budget
- Meals out vs. eating at home
- Subscriptions that you might not be using as much
- Online shopping
Tracking your spending will help you live on less money and in turn, help you live beneath your means.
3. Automate Your Savings
Once you're spending less money, it's time to automate your savings. To do this, set up an automatic transfer between your checking account and your savings account each pay period or each month.
My wife and I have a CIT Bank Savings Builder Account, which pays the maximum interest each month when you maintain a $25,000 OR transfer $100 into your account. For us to earn the maximum interest rate, we set up an automatic transfer from our checking account to our CIT Bank savings account.
The benefit of automating your savings is that you don't need to think about it anymore; that is, by putting your money on autopilot, you'll save consistently.
If your savings account has at least six months of living expenses, check out M1 Finance and set up automatic investments from your checking account to your M1 Finance account. Your money beyond your savings can grow faster with a solid investment plan, such as investing in index funds.
Aside from automating your savings, you can also automate all of your finances. This way, you're automatically paying your bills, including debts like credit card debt, personal loans, student loans, and similar.
4. Lower Your Monthly Expenses
Many monthly bills can be negotiated or lowered through practical means. For example, you can generally negotiate your cable, internet, phone, and auto insurance bills. Some of us may not like the idea of going back and forth with a company and trying to reduce our rate.
Fall in that crowd? Get the app Trim. Trim will negotiate your bills for you and help you find subscriptions you may no longer be using.
Reducing other expenses, such as your utility bills, cell phone bills, transportation expenses, and the amount you spend on memberships such as a gym membership will also help you in the long term.
If you have a health insurance plan that can be adjusted, you can consider lowering your premium by raising your deductible or changing your coverage options. Doing so should be based on how much coverage you feel you need or are using.
Related Post: 11 Life Hacks to Drastically Lower Your Expenses
5. Drive a Used Car
Did you know that if you save even $10,000 by buying a used car instead of a new car, you could have over $100,000 30 years later if that $10,000 was invested? It's true, and it speaks a lot for how a simple personal finance decision such as buying a used car versus a new car matters so much when you're young.
When I was in my mid-20s, I just graduated from college and had my first real job. I took one of my first paychecks and bought a Pontiac G6. It was a great car – the first car that I ever bought – but I paid $26,000 for it in 2007. This was a massively unnecessary expense that I paid for for years.
I don't consider myself a car guy, but I do like sports cars a lot. Despite that $26,000 splurge, I've had a few other cars that I'm sure I've spent too much on.
Nowadays, I drive a Chevy Corvette that I spent $10,000 on. That's right! I paid $10,000 for a near-mint 1998 Corvette. I attribute some of the sale to luck, but the moral of the story is, you can still get killer cars used and save tons of money.
Don't let the bling of a new car cost you tens of thousands of dollars long term.
6. Downsize Your House
Do you live in a house that's more house than you need? My wife and I did from 2011 to 2017. We lived in a two-floor townhouse with a finished basement, and we barely used three rooms. Not only that, but the common charges and taxes were on the rise.
In 2017, we sold our townhouse and bought a mobile home, where we live now. We were able to buy our mobile home by paying cash and then bank the rest of the townhouse's sale, leading us to become debt-free in April of 2020.
Not only is the mobile home more our size preference, but we also have more financial security paying less per month to live here. As two people who enjoy frugal living, this living situation has allowed us to spend money on specific things we enjoy while completely living beneath our means.
7. Build an Emergency Fund
Living below your means also means having an emergency fund that can cover the times when an unexpected expense occurs or if you end up living without an income for some time. I recommend having at least $1000 in your emergency fund at all times, though most experts believe that a fully-funded emergency fund should contain three to six months' worth of living expenses.
8. Create Multiple Income Streams
Another way to live below your means is to raise your income so that you have more money to live off of. You can raise your income through several means, including taking on a side hustle or building passive income.
My wife and I have several forms of passive income, including P2P lending income, dividend income, and interest income. Blogging is a semi-passive form of income because you actively work on it, but the money from older posts is earned passively. Ever wanted to start a blog? Check out this post on how to get started blogging for money.
9. Don't Rely on Credit Cards
Using credit cards often gives people the means of spending more than they can afford. If you have a high credit card balance, consider getting a balance transfer card and paying down your balance before the 0% APR introductory period is over. By doing this, you'll save heaps of money that would have gone towards interest payments.
Even paying an extra $20 per month towards your minimum credit card payments can save you years of repayment and hundreds of dollars in interest.
Wrapping It Up
When you live below your means, you set yourself up for financial freedom at an earlier age. Through regular savings and investing and smart use of your money, you'll be on your way to a financially healthier life. You'll have more money banked for an emergency and more staged for when you're older, as well as some extra fun money in the present.
What do you do so that you can live below your means?