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What is living below your means?
Simply put, to live below your means is to live on less money than you earn. You must not spend more money than you earn. You may wonder why you would want to live below your means – surely if you have the money you’re free to spend it, right? Well, if you want to get ahead financially then it’s essential that you live below your means. It will free up more money for investing, which is essential for building wealth.
Living below your means doesn’t mean that you can’t spend money on the things you love. Of course you can still go out for family meals and of course you can still take trips to the theatre and go on holiday. It’s more to do with being mindful of how you’re spending your money so that you can make conscious financial decisions that will enable you to save more money and avoid debt.
Now you know why you should be living below your means, how do you go about doing so? I’ve given 8 top tips below for ways you can start to live below your means. Let’s get stuck in!
1. Create a budget
Creating a budget is essential if you want to succeed financially. Nothing will better tell you how good or bad your financial situation is than a budget. Create a budget by calculating your income and expenses. Once you have done this you will have a clear idea if you are living beyond, within, or under your means.
When calculating your income, include everything you earn – your wages, any side hustle income, and any benefits you might be getting. Do the same for your expenses. Include everything – your household bills, groceries, fuel, subscriptions, miscellaneous spending, etc. Next, subtract your total expenses from your total income. If there’s money left over that’s great! You’re living within your means. If it’s a negative number it means you’re living beyond your means and you have some work to do in terms of cutting back on some of those finances.
I’ve created a fully automated spreadsheet system that can help you to keep on top of your finances. Creating a budget has never been easier.
2. Curb your spending
The biggest way to live below your means is to curb your spending. You’ll be able to see from your budget where your biggest spending areas are. If it’s on food, find ways to reduce your food spend, such as meal planning and shopping own-brand items. If it’s on eating out, try to cut back to eating out just once a month. Use an expense tracker going forward so that you can note down exactly when you spend, as this will make you more mindful of how much you’re actually spending.
3. Boost your income
Boosting your income is a powerful way to ensure that you are able to live below your means. We can only cut back so far on our expenses, and things like our mortgage, gas and electric, council tax, etc are all essential and often fixed, meaning we can’t reduce them further. But there is no limit to how much extra money we can earn and there are plenty of opportunities out there. I currently do matched betting in my spare time and I can easily make a few hundred pounds each month, which I more often than not send to my ISA. There are so many ways of earning an additional income that you may not have even heard about, such as renting out your driveway, renting out a spare room to a foreign student, renting out your car, completing online surveys, mystery shopping, etc.
4. Stop relying on credit cards
Constantly using your credit cards keeps you in the debt cycle but, even worse, it keeps you in the debt mindset. In order to live below your means, you need to get rid of your credit card debt.
Credit card debt is expensive and if you only pay the minimum each month it will take years and years to clear the debt. If you have multiple credit card debts, it’s likely that a large chunk of your salary is going towards credit card repayments. Once you clear these, do everything in your power to resist ever taking on more debt. This will ensure that more of your money can go towards building a secure financial future for yourself.
5. Build an emergency fund
Having the best budget in the world won’t cut it if life throws you a curveball out of the blue. This could be something like job loss, long-term ill health, or a home emergency such as the boiler breaking or the roof leaking. A way to combat these unforeseen circumstances is to ensure that you build an emergency fund. Having an emergency fund will ensure that you don’t resort to credit cards when an emergency arises. You will have the money sitting there waiting to be used for that exact purpose. And if you’ve been able to build an emergency fund, you’ll be able to do it again if you ever need to use it.
6. Keep major purchases reasonable
It’s easy to get carried away when making major purchases. But if you go too big, you risk overstretching yourself and jeopardise your ability to live below your means. If you buy the biggest house you can afford, you will be tying up more of your money in mortgage repayments, leaving you with less to live on. If you’re looking for a new car and you buy the flashiest one on the market, the repayments are going to be much higher than a modest car. Try to differentiate between your needs and your wants – yes you need a new car but do you need the latest model?
7. Find a cheaper place to live
Living in the wrong place can keep you poor. People who live below their means tend to not live in the most expensive place they can afford. If a large percentage of your money is tied up in mortgage repayments or rent payments, you will struggle to live below your means. It may not be that the area you live in is too expensive but the house you chose is too big. Downsizing can mean that you are able to increase your monthly disposable income, leaving you with more money to save.
8. Automate your savings
Automating your savings is a game-changer when it comes to improving your finances. Set up an automatic transfer (standing order) from your current account to your savings account each month. By doing this, you are ensuring that you pay yourself first – you are putting saving as a priority. Automating the process will ensure that you aren’t tempted to spend the money and it means that you won’t forget to transfer the money either. The money will build away in the background without you even realising it. I use Starling for my saving account as they allow you to have multiple saving ‘pots’, allowing you to save for different categories.
Benefits of living below your means
Living below your means has so many benefits. Instead of living paycheck to paycheck, you will have money left over at the end of the month, as you haven’t been spending every penny you made. This can bring enormous peace of mind and reduce stress levels too. There is nothing more stressful than wondering how the bills are going to be paid each month. This can have a knock-on effect throughout your whole life. Your relationships are likely to be happier as your stress levels will be lower and you will sleep better too, knowing that you are in control of your finances.
If you’re living below your means, you’re likely to have built up a decent amount of savings. This means that you’re able to have more control over your career. If you’re in a job that you hate, you’re kind of stuck there if you’re living paycheck to paycheck. However, if you have a savings cushion behind you because you’ve been living below your means, you can take the time to carve out a new career for yourself.
Finally, you’ll be in a great position to work towards your financial goals. If you’re spending all of your money each month, there’s no way you can work towards becoming financially free. you can only do this by living below your means. becoming financially free.
In conclusion
Living below your means is essential if you want to reach your long-term financial goals. While it won’t happen overnight, it needn’t be difficult. Start by making one change at a time – go out less each month, track your spending, keep a watchful eye when making large purchases and then move on to trying to boost your income. Soon, doing these things will become routine and your money will start to grow.
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