This post may contains affiliate links, which means I receive a small commission at no cost to you. Please read the full disclosure here.
Wondering… what is living below your means?
You are in the right place! You will learn how to live below your means with the best personal finance tips.
Living below your means is simply you have money left over at the end of the month. You’re not overspending money you don’t have. You are living within or below the monthly income.
In all honesty, you are living differently than 95% of people.
It is possible to live below your means. The choice is yours on how to spend your money. Are you going to build a strong foundation with money? Or are you going live on quicksand barely able to get ahead and focused on the next payday?
That is the difference between living below your means or not making it by.
Personally, I took me awhile to understand why living below my means was important. I would spend everything in my account and put off saving for something big or even retirement. Simply put… I was never taught to save. For me, it was a change in money mindset that was a game changer for me.
We sat down, figured out what we wanted in life and how our money goals would get us there.
That meant we needed to live below our means. It was time to live below your means but within your needs
That meant we needed frugal living tips to save money, so we could reach our money goals. For us, living below our means is a lifestyle choice. One that we are okay with because it has opened up many doors and opportunities.
Now is the time for your to start understanding how to live below your means.
Let’s dig in…
Living Below Your Means Definition
The definition to live below your means is simple…
Your spending is less than the money coming in.
At the end of each paycheck, there is leftover money. Your expenses are lower than your income.
For many people, this may be a challenge. Society has taught us to spend every single penny we have. Not to save it. Debt is completely acceptable for most people. Here at Money Bliss… debt needs to be paid off in order to reach financial freedom.
In addition, lifestyle creep is a slippery slope most people fall victim to at some point in their lives.
Just a note… Living BELOW your means is not the same as living WITHIN your means.
- Living WITHIN your means is the same as making ends meet. You have just enough to get by each and every month.
- Living BELOW your means leads to greater things, specifically financial independence and to retire early.
Now, to answer the question, how do I stop living above my means?
Benefits of Living Below Your Means
There are many benefits of living below your means. Primarily, you are living a life that you can actually afford.
You don’t have to rely on other forms of getting by… debt, living paycheck to paycheck, or borrowing money. Everything you spend money on you can truly pay for. Your income exceeds your expenses.
Also, the amount of stress is way lower surrounding money. That only can be life saving for your health. There isn’t a constant worry if there will be money left at the end of the month, whether or not you can afford to pay rent, or even buy your special someone a birthday gift.
That leads to a happier life. Instead of being in a negative cycle of living above your means, you are living with less. You are able to find contentment and happiness.
Typically, this leads to accumulating less material stuff. If you are consciously buying less stuff to make sure you stay below budget, then you will have less stuff coming into your house to clutter it up.
Recap – Fabulous Benefits:
- Spend what you can afford
- Less stress
- Happier life
- Avoid debt
- Less materialistic stuff
The benefits are truly fabulous!! Less stress means you can love your life!!
Why Live Below Your Means
Living below your means make you self reliant and self sufficient.
Through the process of living below your means, you will start accumulating money and then you don’t have to rely on other means.
That is huge!
Most people are struggling financially and swallowed alive in debt. Since you consciously chose to live below your means, then you are living life differently than most of the population. That means you will be swimming upstream against the societal norm. It won’t be easy, but the benefits greatly outweigh debt.
It may mean that living below your means to retire early is your mantra.
By becoming self reliant on your own self with money, you are beginning your journey to financial independence. Not sure where you are in finding financial freedom? Then, check out the 10 Money Bliss Steps to Financial Freedom.
To make sure you stay on your financial independence journey, then make sure to do the following things:
Debt free living is one of the cornerstones of financial peace and living below your means but within your needs.
Debt especially credit cards and home equity loans can become a slippery slope when trying to live below your means. The debt can quickly start snowballing within a blink of an eye and putting the brakes on debt is harder once it has started.
Avoid debt like the plague!
Related Debt Posts:
- How to Get Out of Debt in 5 Easy Steps
- Best Debt Apps To Payoff DEBT
- Are You Making One of these Common Debt Payoff Mistakes
- 7 Things to Give UP to Pay Off Debt Faster
An emergency fund is the backbone to financial security.
Make sure you emergency fund is fully funded. In all honesty, you never want to use it, but it is there in case you do.
This small amount of money set aside will help you avoid debt. This money builds a strong foundation with money.
- Emergency Fund – Everything You Need to Know
- Quickstart your Emergency Fund Challenge in Less than 60 Days
- What Comes First? Emergency Fund or Pay Off Debt?
Rainy Day Fund
Once debt is gone and an emergency fund is established, then a rainy day fund comes into play. This “bigger” emergency fund, if you want to state it that way, will help you to overcome a bigger financial or personal crisis.
By living below your means each and every day, you are able to easier withstand a job loss or medical difficulty.
Learn more about rainy day funds.
Save for Big Purchases
Obviously, if you are living below your means each and every month, you can’t afford to buy a new couch or replace the furnace in your house. That is where sinking funds come into play.
Money set aside each and every month to be save for big purchases.
A rainy day fund helps you live below your means because instead of financing bigger purchases or go into debt, you are able to pay in cash. Simply put, it is the best way to take care of your finances first.
Pro Tip: Even starting to save for Christmas early is a way to help you out.
That right there is a huge and makes you different from most of society!!
How to Live Below Your Means
Too many times, living below your means sounds like you are withholding money from yourself and not spending a dime. In all honesty, it sounds miserable and like not a whole bunch of fun.
So, how do you live well below your means?
This is exactly how…
1. Know Your Income
The first step to living below your means is to know your income. If you don’t know your income, you don’t know how much is available for expenses. Plain and simple.
There are a couple of different places to find your income.
- Salaried employees – Take your last paycheck and find your net income amount. If you are paid more than once during your budgeting time frame adjust accordingly.
- Hourly workers – Look at your pay stubs for the last 3 months. Then, take the lowest paycheck you took home. Use that number as your basis. (It is better to plan for less income than be stuck short.)
- Commission Based, Self-Employed or Freelancers – You are in a tougher spot to know your income. Look at your income over the last two years. Next, take the average monthly income made. Then, shave off 25%. That is your income number to use.
Knowing your income is the baseline to start living below your means.
Completely lost? Check out How to Budget Money and Still Enjoy Life.
Expert Tip: Taxes is the necessary evil that you must take care of. Here is a calculator to estimate that you are withholding enough taxes from your paycheck. Don’t count your tax return as income. Think of it as a bonus with a purpose.
2. Save Immediately
This tip is crucial for living under your means. As soon as money (paycheck) comes into your bank account, immediately transfer money out to reach your money goals.
Pay yourself first! Save immediately.
That way the temptation to overspend or spend everything in your bank account is limited.
Personally, I like having a separate online savings account from my day to day money. That way the money is gone as well as the temptation to spend because I can see the money sitting in my checking account. In addition, participate in one of the 52 week money saving challenges to help grow your money faster.
In all honesty, we can all live with extra stuff and would be fine without paying for certain services. These are conveniences. In the end, it is a simple way to live below your means. Some people may call it frugal. Regardless of what you want to call it, you won’t be living paycheck to paycheck.
And as you will learn shortly, your savings accounts will come in handy as another tip to living below your means.
Still Have Debt? – If you are still struggling with debt payments, then first create an emergency fund and start tackling your debt ASAP. Then, the extra that you should and could save needs to go to pay off debt immediately. Time to crush your debt!
Next, you must know what your expenses are in order to live below your means. In this section, we will deal with two types of expenses – basic/mandatory expenses and fun/discretionary expenses.
When living below your means, you must first make sure all of your basic and mandatory expenses are taken care of. The primary needs you need to live.
Then, you get to decide what fun or discretionary expenses are worth staying in your budget or what expenses can go.
Commonly, people blur the line between mandatory and discretionary expenses. Learn about the difference.
In order to live below your means, you must make sure your expenses are less than your income. As well as any saving or giving.
Simply put… Spend (and save) less money than you bring in.
The goal is not to live within your means, but below your means.
4. Steer Clear from Upgrading
Temptation is everywhere. The marketing experts have you convinced that you need the newest and shiniest brand new …. fill-in-the-blank. When in reality you don’t. You may want to upgrade, but you truly don’t need to.
Did you know the cost of upgrading to a new iPhone each time one is released? Don’t worry someone went to the extent to figure out the numbers. You can read it here.
The results are staggering! Upgrading your things and your lifestyle will cause a HUGE HIT to your personal finances (AKA your net worth).
If you want to become a millionaire, one of the millionaire habits is to avoid the lifestyle creep.
While on the surface the cost of upgrading most things is minimal (probably under $20), it is the cost of adding up all of the upgrades over a year or many years that the true cost doesn’t help you to live below your means.
Now for the biggies… Your house. Your Car. Those expenses take the biggest percentage out of any household budget percentages. Can you afford those new costs while still living below your means? Are you willing to sacrifice your financial independence to be a slave to a higher mortgage or bigger car payment?
Upgrading comes at a cost, specifically an opportunity cost of your money making more money.
- Avoid the Trap of Lifestyle Creep and Reach Financial Freedom
- 12 Things I Quit Buying to Save Money
- How to Thrive When Living on One Income
Is it possible to live below your means?
The choice is whether or not you want to choose a lifestyle that reflects living below your means.
And I’m not taking about wearing shaggy clothes and torn up shoes, I’m talking about living comfortably yet spending less money than you make.
At the end of the day, it is your choice about how and where you spend your money. This is your journey with money.
Living below your means will open many more opportunities than being in debt. Now, the time to learn how to start budgeting.
- How to Make a Budget in 7 Simple Steps
- 9 Surprising Advantages of Budgeting your Money
- The Best Methods of Budgeting You Need to Know
- How to Make Living on a Budget Painless