Knowing how to live below your means is crucial if you want to attain financial freedom and reach your financial goals. Though it seems simple enough, there are many reasons why we find living below our means to be difficult.
Perhaps you did not have a lot of resources as a child or spending above their means was how your parents spent their money. Maybe the opposite is true and you were raised in a frugal household and you were never allowed to indulge. Or you may just love spending money shopping!
Once you have acknowledged the reasons why you may struggle with spending each penny, it’s important to understand the fundamental importance of living below your means and saving your money.
In this post, we will give you a five-step process for how to live below your means with joy.
What does it mean to live below your means?
The phrase “living below your means” describes spending less money than you actually make. It means that you keep your expenses within what you can afford with your income.
The unfortunate reality is that most families tend to live above their means–living paycheck to paycheck. They accrue credit card debt to fund a lifestyle that they can’t truly afford. In this instance, they are living above their means.
Benefits of living below your means
Unlike the products that you purchase, the sense of peace and well-being that you get from having financial security and savings is long-lasting and contributes to a happy life.
While things like meeting up with your girls for brunch, fabulous jewelry, or the pick-me-up latte in the afternoon might provide joy at the moment, that joy is limited. In fact, if in the back of your mind you are worried about money, I’d argue that you cannot actually get joy from these types of purchases.
Certainly, these things contribute to our happiness, but only when we are in control of our money. The joy and well-being that result from being in control of your money are what will actually bring you joy.
Aside from peace of mind and joy, there are other benefits of living below your means.
Ability to reach your financial goals faster
When you aren’t living paycheck-to-paycheck, your finances can go much farther. This means you have the ability to reach financial goals like saving, investing, and even paying off debt much faster.
Less financial stress
There’s a freedom that comes from not being stressed about paying your bills or needing a paycheck. Living below your means and managing your money well allow you to feel at peace about your financial situation. This not only helps your mental health but is also crucial for a positive relationship with your partner.
5 steps to start living below your means
So, how do you actually below your means? You can’t do so without a plan. Here are 5 steps to living below your means.
1. Create and stick to a budget
Your budget is a very important tool for making sure that all of your necessary and discretionary spending is accounted for and that the math works out!
There are several types of budgets that you can create. You can leverage a zero-based budget or something less restricting like the 50/20/30 budget. Either way, you should have a plan for how you will spend your money.
When you have made a budget and are committed to your spending limits, it is common to feel a sense of relief and accomplishment. However, the key to budgeting is not creating the budget but sticking to the budget when you spend.
2. Track all spending and income
This is very simple and is something you should do no less than once per week. Tracking your spending means that you record where all of your money goes. You can do this in an app, in a spreadsheet, or simply in a notebook.
So simple, and yet you literally cannot live below your means if you are not tracking your spending.
Have a list of expense categories, which you will also use in your budget. When it comes to tracking your money, these categories help you keep things organized and streamlined as you track.
3. Cut unnecessary expenses
You may have to give up expenses that you love in order to live below your means. To do so, determine what your true living expenses are and reduce everything above it.
This process will inevitably involve emotions and feelings of sacrifice. If you have a partner, it will be necessary to commit together to this process. Hopefully, it will bring you closer to each other and your shared values.
As you work through this step, figure out what is truly necessary and what isn’t. Then begin to cut out expensive items that simply contribute to a lifestyle that you want but that are unnecessary.
Next, determine the things that may not be necessary to survive but are necessary for your happiness. This can include giving to charity, taking some type of vacation each year (vacations don’t have to be expensive), and paying for a babysitter in order to have alone time with your partner.
4. Automate your savings
Automation takes the guesswork out of managing your money. It bypasses your emotions and makes maintaining your financial plan easier.
Make sure that these savings accounts are not accessible with checks or debit cards. The purpose is to save money, not to have access to freely spending it.
Having an emergency fund is critical if you want to live below your means. This means that you’ll have funds available if something goes awry. It helps you avoid getting into debt for unexpected expenses.
5. Maintain positive emotions about living below your means
This is perhaps the most important step of them all. Without positive emotions, you most likely will not succeed.
Create and maintain happy emotions around living below your means. As you develop new spending habits, celebrate each time you save. Literally do a fist pump, smile, cheer–whatever is authentically you.
Last, make sure you do not deprive yourself of the things that bring joy. This can backfire!
Within your budget, have categories where you spend on indulgences. Plan for self-care like a massage, new clothes, dinner out once per month, brunch with your sister, or perhaps a simple latte on your way to work.
Remember, what is considered an “indulgence” is always relative!
Why should you live below your means?
While we may not have been put on this earth to make and spend money, there is no denying that our ability to survive and thrive depends upon money. This is why you must be in control of your money and this is why you and your family’s future depends upon your being in control of your money.
As anyone who has struggled with money knows, if you are not in control of your money, your money is in control of you. Financial freedom means that you are in control.
Being in control of your money means that you have savings for emergencies, you have savings for the future, you have plans for future purchases and you know how you will afford them.
Hopefully, this simple 5 step process will help you understand how to live below your means. Give it a try, and you will truly experience the freedom and happiness that comes from being in control of your money.