Today, many people are financially unstable, not because they don’t earn enough income, but due to their desire to live above their means. You can’t thirst for champagne when your budget can only pay for a bottle of beer.
Most times, the temptation to live above one’s means is caused by the ever-growing standard of living. As you read this post, the latest electronics, designer clothing, luxurious cars, and expensive smartphones are being launched in the market.
It’s pretty hard to resist spending your hard-earned money on things like these, especially when you think you can afford them. By the time you purchase these items, you are practically preventing yourself from living below your means, which can drastically impact your finances.
What Is Living Below Your Means?
Living below your means is a situation where you spend money on only things that are not beyond your financial capacity. By purchasing items that you can honestly afford, you are living below your means.
You must understand that to live below your means doesn’t mean you are living an impoverished life. Instead, it means you are protecting your finances, thereby preventing impoverishment.
Why Is It Important To Live Below Your Means?
Living below your means can help you attain financial freedom, and it enables you to save money wisely and be prepared for any unforeseen financial crisis.
In 2020, the Covid-19 pandemic swallowed over 4 million jobs. Imagine losing your job while you had been living above your means. This means you have ultimately set yourself up for financial failure, which would be very regrettable.
How Does Living Above Your Means Affect Your Finances?
Living above your means is an expensive lifestyle that you don’t need. By buying a car beyond your budget, paying a house rent that’s out of your salary range, or paying high-interest rates on credit cards, you are working against the growth of your finances.
In fact, you are indirectly preventing yourself from gaining financial freedom. If you continue with this bad money habit for a long time, you will rope yourself in so much debt that you’d keep paying off for the rest of your life.
Even though it seems like you can afford something, please don’t go ahead and splurge your money on it. Take your time to examine your previous expenses and your current income. This could help you determine if you can comfortably afford that thing you want to purchase.
How To Live Below Your Means
You can start living below your means by first deciding not to purchase anything beyond your financial power.
The theory on how to live below your means is quite simple: do not spend money on things you know that you can’t honestly afford. If you go against this rule, you are endangering your finances, and before you know it, you may start incurring unnecessary debt.
Sometimes, people admit to living above their means because they aren’t earning enough money. But the truth is that irrespective of what you earn if you can’t design a feasible budget that suits your pocket, you might live above your means without even knowing.
If you are clueless about how to create a working budget, check out this comprehensive guide where I explained (in detail) how to build a budget easily.
Benefits Of Living Below Your Means
You enjoy certain benefits when you learn practical ways to live below your means. It doesn’t really matter if you are not earning a lot of money. Once you start living below your means, you would:
- Avoid unnecessary debt
- Sustain your finances for as long as possible
- Be able to cope during a financial crisis
- Be able to save for the future
- Be able to track your spending
10 Tips For Living Below Your Means
If you care about your finances, you will prioritize living below your means. As much as you desire to go on vacations, drive a fancy car, and ultimately live a luxurious lifestyle, do not put your finances at stake. You must protect and sustain your financial status by learning to live below your means.
Here are 10 fantastic living below your means tips that can help you pull this off:
1. Create A Budget
One of the most intelligent moves you can make on your finances is to live your life on a budget. The importance of a budget can’t just be overemphasized. When it comes to living below your means, a working budget is the first thing you need to get started.
To live below your means, you have to guide your spending habit, and there’s no better way to do it than by building a perfect budget that suits your income.
By setting a budget, you can capture your take-home pay and all your necessary expenses. The budget would guide your spending habit so that you don’t live above your means by falling for impulse purchases.
The good thing about budgeting is that it’s a perfect example of how to live below your means but within your needs.
More importantly, one thing you must understand about building a budget is that it requires discipline and willingness for the whole process to work out successfully. That is, you must discipline your spending habit and stick to your budget.
2. Track Your Spending
If you must live below your means, you must identify where your money goes. On a daily basis, we spend money on various things we may not even remember later on, especially when there’s no budget in place. This is why you need to track your spending.
By tracking your expenses, you would determine if you are spending too much money or living above your means. At this point, you can make certain adjustments to your spending.
Tracking your expenses is not difficult. However, if you try to merely recall your previous expenses within the past two months, you may not get an accurate answer.
You can only reach your expenses correctly by examining documents such as your bank statements, receipts or invoices, credit card history, and any other related piece of document that can help you identify your expenses.
This is one of the practical tips that can enable you to live below your means.
3. Prioritize Saving Money Before Spending
What is the first thing that comes to your mind when you receive your paycheck? Do you think about getting a new pair of fancy sneakers, or do you think about how to save some part of your income for future purposes?
Truth be told, you must prioritize savings before anything else to succeed financially. Think about ways to reserve or multiple your income rather than spending it all without getting anything in return.
Living below your means would require you to save money occasionally, and to do that, you must learn to make savings a priority. As much as you have other things to spend your money on, don’t disregard saving a small portion of your income. Later on, you would thank yourself for making that decision.
If you don’t have any significant reason to save money, build an emergency fund.
Any emergency fund is where you can constantly transfer a certain amount of money to prepare yourself for unexpected expenses.
Once savings become a priority, you wouldn’t mind living below your means to save money.
4. Reduce Debt
It’s challenging for you to grow financially when you have so much debt to pay off. If you have so much debt on you, it’s probably because you haven’t been living below your means.
You need to set up a proper plan to pay off your debt or reduce it as soon as possible. If your debt is cleared up or reduced, you can start focusing on growing and sustaining your financial status.
More importantly, it would help if you start learning to live without incurring unnecessary debt. Although millions of Americans are in debt, that doesn’t mean you can’t live the rest of your life without worrying about paying down any debt.
5. Plan For Large Purchases
We all have big purchases we would love to make, such as buying a car, a house, or going on an expensive vacation. Nonetheless, you can’t just wake up one morning and splurge money on any of these big purchases. It would be best if you plan for them, and you need to make that big purchase a financial goal that you must plan for.
To help you set a financial goal successfully, I’ve written a comprehensive guide that will show you a 6-step process of setting up financial goals.
A perfect reason you must plan for big purchases is that you may not have enough money to make that purchase as soon as the idea kicks in. You need time to plan for it so it doesn’t impact your finances.
6. Leverage Discount Sales
Buying items at discounted prices over a long period can help you save money. There are numerous discount retail stores where you can purchase items for lower prices.
Besides, some stores hold special discount sales during special seasons like Easter, Christmas, and Thanksgiving. You can take advantage of such opportunities to get so many items at discounted rates.
7. Create Another Stream Of Income
If, after creating a budget that comprises all your expenses, you still find it difficult to live below your means, it means you aren’t earning enough income yet. In a situation like this, you would have to increase your cash flow by creating another income stream.
You could take a part-time job, engage in freelancing, or try out any side hustle that would bring in extra money consistently.
On the other hand, if you feel you can’t handle multiple jobs, you should search for another job with a bigger paycheck instead and focus on that.
8. Negotiate For Lower Prices
Sometimes, you can save money on purchased items by negotiating with vendors. For instance, if you have been a long-time customer who makes frequent purchases and doesn’t owe, you can use this status to your advantage and ask for a lower price when buying an item.
On the other hand, if you buy an item that doesn’t have a fixed price, you can use that opportunity to negotiate for a lower price. By purchasing items at cheaper rates, you don’t only get to save money; you also prevent yourself from overspending.
Apart from negotiating, you can buy cheaper items by patronizing discount stores.
9. Live Frugally
Frugal living is a great way to live below your means. In fact, a frugal lifestyle is an excellent example of living below your means because when you are frugal, it means you’d find every possible way to cut down on your expenses and avoid extra spending.
Contrary to what many people believe, being frugal doesn’t mean you have to live your life like an impoverished individual. Instead, being frugal means, you are a wise spender who doesn’t fancy a lavish lifestyle. You’d only have to focus on your needs, not your wants.
Moreover, being frugal improves your finances a lot. You’d be able to save a lot of money, manage your income ideally, and accomplish major financial goals when you plan for them.
10. Avoid Insignificant Spending
Splurging money on irrelevant items is one of the common ways to live above your means. Sometimes, people walk into a store to buy only a few items. But sadly, they end up buying several other things. This is called impulse spending, and it can drastically affect one’s finances.
This is why it’s not advised to make purchases with your credit card. Instead, use cash. If you are shopping with your credit card, you lose control of your spending. But if you shop with only cash, your spending becomes very limited. This would help you live below your means.
Another practical tip that would help you avoid impulse purchases is shopping with a list. Don’t shop aimlessly without properly identifying the items you are supposed to buy.
Before walking into a store to buy anything, create a list of what you need to purchase. This would prevent you from overspending or splurging money on what you don’t need.
Shopping with a list is just like creating a budget at the beginning of each month, and it’s meant to prevent a spending spree.
Final Thoughts On Living Below Your Means
You may not get rich by living below your means, but it’s a great way to prevent yourself from getting poor or financially stranded.
Also, living below your means may not always be an easy feat. There could be emergency expenses, you may be tempted to spend more than you’ve bargained for, or your income might seem too little to manage.
This is why you must improve your financial status by saving and investing, building another source of income, and even creating an emergency fund. When you focus on chasing these goals, living below your means becomes easy.
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