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Have a think about the people you know. What do they do when they get a pay rise? Chances are they increase their spending in line with that pay rise. Am I right?
Well, they’re not alone. The majority of people will make a major purchase with a bonus or will increase their spending after experiencing an increase in income.
While this may be the norm for most, if you want to get out of debt, build wealth, or start to save more for emergencies, it is a good idea to try to live below your means.
What does it mean to live below your means?
Put simply, living below your means is the act of spending less money than you earn. If you earn £2,000 per month but only spend £1,500 then you are living below your means to the sum of £500. That £500 can be used to pay off debt or can be saved.
Conversely, if you make £2,500 per month but are spending £2,700, then you are going to find yourself in financial bother pretty quickly, as you will be unable to put any money aside for emergencies or prepare for your future in any way.
While it means delaying instant gratification, the act of learning to live below your means will benefit you in the future.
Benefits of living below your means
1. Debt-free living
Living below your means will ensure that you live your life debt-free. If you aren’t spending more than you make then you won’t be accumulating debt and spending extra money on the interest that comes with taking on debt.
Living below your means instantly brings your spending under control. You won’t be going over your budget every month and this means that if you’re already in debt, you will now have the funds to be able to pay it down.
2. Less stress
A number of studies have shown a clear link between financial worries and mental health problems, such as stress and anxiety. If you’re worried about where you’re going to get enough money to pay the bills, then you are bound to be feeling stressed. This can affect your sleeping patterns and eating habits too.
If you are living below your means, you’ll never need to worry about whether or not you’ll have enough money to meet your outgoings. You’ll have money building up continuously, as you are earning more than you’re spending. You’ll have more discipline and control over your money and this will ultimately result in a reduction in stress.
3. Fewer financial emergencies
When you live above your means, even a minor emergency can be a huge financial headache. If the clutch goes on your car, you’re likely going to struggle to find the money for the repair and chances are it’ll have to go on a credit card.
But if a bigger emergency occurs, such as losing your job, then you are going to be in quite big trouble. As you’ve been continuously spending more than you earn, you have no safety net to fall back on.
Living below your means allows you to build a safety net, or emergency fund, for yourself and these emergencies will become mere inconveniences. You will also be able to build up your sinking funds so that you are prepared for every eventuality.
4. Less worry over work/employment
There are millions upon millions of people stuck in jobs that they hate. They’re trapped because they’ve been there years, have worked their way up, and are now earning good money. They’re able to cover their monthly outgoings. If they were to leave, they’d find it difficult to find a job that paid as well as their current job. And because they haven’t been living below their means, they can’t afford a drop in income.
Those living below their means don’t have to stay stuck in a job they hate. They can take a drop in income for a short while, as they will have built up a reserve of money. If they feel like a change in career, they can take the time to retrain or study.
5. Watch your savings/ investments grow
Your savings grow quickly when you aren’t busy spending every penny you make. By being frugal with your money, you are able to build wealth. Instead of worrying about not having enough money, you will be worrying about where you should start investing your money.
A good place to start is with a company like Freetrade. You can invest in the stock market with s stocks and shares investment ISA or you can start to build your pension pot with their tax-efficient pension product. They’ll even give you a free share worth up to £200 if you sign up via this link.
In order to be wealthy, you need your money to grow. The best way to do this is by investing it over a long period of time. So, the sooner you start living below your means, the better.
6. Able to save for big purchases
Living below your means will enable you to save for big purchases instead of resorting to buying them on credit. If you get a pay rise, instead of spending that money straight away each month, you can save it for something important, such as a new car or a family holiday.
By saving for these things and not using credit to finance them, you won’t need to pay interest costs on top of the purchase price.
7. Better family time
Let’s face it, although you undoubtedly love your family, if you are struggling with money problems, you aren’t going to enjoy the time you spend with your loved ones as much as someone who doesn’t face the same struggles as you.
I am speaking from experience here. When I was deep in debt all I could think about was money. I was constantly stressed and worried and found I just couldn’t relax or enjoy family time like I should have been able to.
If you’re living below your means, you will be spared these worries and will be able to enjoy doing things with your family.
8. Satisfaction and achievement
When you realise that you have mastered the art of living below your means, you will feel a sense of satisfaction and achievement.
So many people try and fail to live below their means as it’s not an easy thing to do. We are constantly bombarded with adverts for lovely things and we see our friends and families buying things we would like.
It takes a strong person to put off buying something they have their eye on in preference for saving that money. We know that many of our friends aren’t able to do this, so when we actually manage to do it ourselves, we feel a sense of accomplishment. We have achieved what many others are unable to achieve.
9. Ability to allocate ‘fun money’
If you’re busy trying to make ends meet, there’s probably never enough money left at the end of the month to be able to treat yourself. If you can barely afford to pay your council tax, how can you justify buying yourself a new outfit or having a meal out?
But if you are living below your means, you know you are able to easily meet your monthly expenses and have money left over. You will therefore be able to use a portion of this money as your fun money. No more guilty spending, as your fun money has been budgeted for!
10. You’ll lose interest in keeping up with the Joneses
When you realise how much more peace living below your means will bring, you will no longer be interested in keeping up with the Joneses.
This is because you know that many of the Joneses fund their purchases by credit. You know it’s more sensible to save for these bigger purchases in order to avoid the stress and worry that comes with having debt.
When you have been living below your means for some time, you will have amassed a good amount of money. You will be able to afford a lot of things that you used to want. Maybe a brand new car paid for in cash or maybe an extension on your house. But you will probably find that these things no longer seem so important now. It’s human nature to want the things we can’t have. Now that you know you can have them, they lose their appeal.
11. Greater options
Living below your means affords you greater options in life. If you want to take a break from work or reduce your hours, you will probably be able to do so. If you want to have another child, you will probably be able to afford to. If you want to start up a new business, you will be able to do so.
As you have been living below your means, you know that you can afford to take a drop in income and still survive.
When you aren’t saddled with debt and you don’t have terrible spending habits, you have so much more freedom.
12. Your children will learn positive money habits
Our children are watching everything we do. Certified financial planner, Mac Gardner, believes the number- one behaviour children learn from their parents is spending habits. If you are spending every single penny you have on things you don’t really need, your children will eventually mimic this behaviour and end up with the same financial problems you are facing.
Conversely, if you spend your money wisely and consistently put money aside for savings, then your children are likely to pick up these positive money habits.
13. You will actually own things
People who live below their means will be able to build wealth much more quickly than people who spend, spend, spend. Building wealth means that you will be able to pay off your house early or pay for your car in cash. You will actually own these things. They will belong to you and not to the bank. You won’t be paying thousands of pounds in interest and they can’t be taken away from you. What a feeling that would be!
14. A secure retirement
If you are living below your means, you are safe in the knowledge that your short-term goals can be met. You can therefore look towards your longer-term goals and you can start to plan seriously for the future. Learning to live below your means ensures you control your spending, making your money work for you.
I used to think that buying myself things or buying things for my family or home would make me happy. I used to buy things I didn’t really need or even want in the hope that I would feel some sort of sense of satisfaction or contentment. But it never came. I bought more and more but I could never seem to fill the void I had. I just seemed to be caught up in a vicious cycle of spending and unhappiness.
I realised that I couldn’t buy my way to contentment. It was only when I started to live below my means that I felt content. I enjoyed saving money. I loved the sense of security that came with saving. I was no longer interested in keeping up with the Joneses and I found meaning within my own life.
If you want to take control of your money and build wealth for your future years, then you really should consider living below your means. Yes, it can take a while to master and you may have blips along the way, but you will soon see how much more content you are knowing that you have a financial safety net in place if your circumstances change.