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Does your credit card bill make you break out in a sweat? Do you always seem to be out of pocket even though you work and earn a weekly wage?
Or, you find that there are more ‘rainy days’ than you care to count?
You just can’t seem to stretch your monthly salary far enough to meet all your expenses, let alone have money left over at the end of the month to put aside to save. The sad fact is – you are living above your means.
Not living within your means can easily catch you unawares if you do not consciously and continually monitor how much you spend or keep within your budget.
This is also the easiest way to find yourself struggling with spiraling debt and the stress that comes along with it. At the end of the road could be financial ruin.
The path to financial freedom, on the other hand, begins with finding and implementing ways to start living below your means.
What does it mean to live below your means and, the most important question – is it really possible to achieve?
In this blog post we take a look at:
- How to identify the warning signs that indicate you’re headed for financial trouble
- What it is to live below your means
- How to start living below your means
- The benefits of living beneath your means
There are many ways that can tell you are heading towards facing crippling debt.
Read on to find out more about how you can set yourself financially free with tricks to help you live below your means. But first let’s find out where you might be going wrong.
What Is the Definition of living Under your means?
What does it mean to live under your means?
In simple terms, living beneath your means is to spend less money than you earn. However, for many people this is harder to implement in practice.
Statistics show that 77% of American households are burdened with at least some type of debt.
Living below your means requires you to be savvier in your approach to spending money.
And it isn’t easy! You will have to have some grit, and some self-discipline. Restraining one’s tendency to spend (especially if this has become an ingrained habit) will be difficult.
Your success to live within your means will not be without struggle at first and will take a disciplined focus and unwavering willpower to achieve your financial health goals.
But, it will be worth it! The more you can save, the better things will get for you and the less stressful.
Excited about a healthier financial future? To help inspire you towards financial success, here are a few tips on how to live within your means.
Benefits of living below your means
Why should you live within or even below your means? The most important benefit is that you won’t be getting into debt.
If you are not living in your means, then you are most likely using credit to pay for what you don’t actually have money for.
And debt is the worst thing you can do for your finances and your life in general. It is a hamster wheel of minimum payments and finance charges.
You can end up wasting thousands of dollars over the years on interest fees! If instead, you are able to save up money, you can potentially use that money to make more money!
With extra money you can invest, start a money-making business, buy a home or better yet a rental property that makes you money.
Here are some more benefits of living below your means:
- Less stress
- You can have an emergency fund so you aren’t stranded when something unexpected happens
- Getting ahead financially
- Saving up money to invest and make more money
- Not becoming a prisoner to debt
- Creating a better financial future
- Get rich by living below your means! Yep, there are many people who did this to continually gain more money and eventually ended up rich.
Live Below Your Means Examples
Living below, beneath or even within your means is easy to know if you are doing.
If you have extra money each month to put into a savings account then you are in balance.
An example would be if you make $4,000 in take-home pay each month, but you spend $3,500 on expenses, entertainment and everything else. That leaves you with $1,000 extra dollars to save.
In just one year you would have $12,000 saved up! As you can see, living below your means is a powerful way to get our finances healthy.
But if for instance you make $4,000 take-home pay a month, but you are spending $4,500 a month on expenses, that is definitely a poor path to be on.
There are actually many millionaires and even billionaires who still live frugally.
Warning signs that you’re living beyond your means
In order to understand what living below your means is, you have to first understand what living above your means is.
There are two situations that best illustrate what it means to live beyond your means.
The first example is the one most people are familiar with – you spend more money than you actually make.
The second example sees you spending all of your income on your monthly expenses with nothing left over. If you can’t save any money, you are still not in a good place financially.
The first step to overcoming financial stress is to recognize the problem. You won’t know what to fix if you don’t know where the problem lies.
Here are some of the common red flags that indicate you are spending money you seriously can’t afford to spend.
1. You Can’t afford to have an emergency fund
An emergency fund is like a buffer that absorbs the cost of an expense you were not expecting. You might have an emergency like urgent repairs needed for your home (burst pipes, flooding, and electrical faults) or car.
Or, you might encounter an uncontrollable financial emergency like losing your job.
Unplanned expenses are not expenses that are for luxury items but for services or items that you really can’t do without. And, that come out of nowhere.
Healthcare services and home appliance repairs are some of the most common expenses that can come at you out of the blue.
Without an emergency fund to tap into, you would have to resort to relying on credit facilities like credit cards. That usually means high interest rates, which invariably, lead to more and more debt.
2. You are always out of budget
A budget is a handy financial tool that helps you set the money you have available to spend on your daily expenses such as housing, travel, food, utilities, etc.
If you have allocated $600 for food but are spending $800, this leaves you less money for your other expenses.
If you do this with more than one category in your budget, you will run out of money before the end of the month. And, it is a sure-fire sign that you are not living below your means.
When you find that you are spending more than the budgeted amount for those categories, you are spending more than you have.
You will have to reduce the amount of money you spend until you make more money to afford a larger budget.
3. You can only pay the minimum amount due on your credit cards
There is no doubt about it, credit is expensive. Really expensive.
The longer you take to pay off the outstanding balance on your loan, credit or store card, the more that credit debt (due to interest rate charges) will end up costing you in the long run.
If you are only meeting the minimum amount for monthly repayments, this can not only keep you longer in the soul-destroying cycle of debt, but is also a sure sign you are spending more money than you can afford.
Longstanding advice from financial experts is to pay a bit more than the minimum repayment amount so that you can beat the interest rate charges and pay off the debt more quickly.
4. You are not budgeting
Without a written budget in place, you are not able to keep a watch on the amount of money you spend.
It is easy to spend far more money on certain things without having a set limit in place.
Not budgeting your money can also cause you to spend money on unnecessary, nice-to-haves leaving you with less money to spend on essential expenses.
Of course, having a budget is one thing, sticking to it, is another.
5. You live from one paycheck to the next
Living from paycheck-to-paycheck, you have barely enough money to cover your monthly expenses.
You find that you are down to your last few dollars and there is still another week left to go until the end of the month and your next paycheck.
This happens every month and you don’t know how to escape this cycle. This is an indicator that you don’t know how to live below your means.
6. You just can’t seem to save money
Conventional wisdom dictates that you set aside a small portion of your earnings into savings each month.
How much you should save each month is actually 20% of your earnings.
If saving money means that you won’t have enough money to cover all of your expenses, then you haven’t figured out how to live within your means.
Try this savings calculator to help budget and know how to live beneath your means:
7. You can’t keep your spending under control
One of the reasons why you are always out of pocket is because you can’t control your spending.
You buy things you don’t need – designer clothes, luxury spa treats, expensive nights out or indulgent getaways.
These types of expenses are all the more worrying if you are using credit to pay for them.
A good question to ask yourself before spending any money is – do I really need this?Differentiating between need and want is a must if you want to quit living above your means.
Without restraining your tendency to shop without control, you will find yourself forever in debt.
Even if you do end up earning more, without a disciplined mindset to spending money, you will continue to spend heedlessly and unnecessarily and risk ruining your financial life and future.
If any of the above seems familiar to you, it is time to initiate change but what does it REALLY mean to live within your means?
How to live below your means
If you have been living above your means for a while, it will take some discipline and focus to create a positive shift in the direction of your financial health.
To live below your means is about what you do with the money you have. Secondly of course, you can work to make more money to help make this process much easier.
To live within your means also doesn’t necessarily mean that you would have to deny yourself or make sacrifices on the things you enjoy.
What it does mean is that you just can’t have them in the immediate moment that you want them.
You may have to put off those things you want until you have saved enough money for them. Delayed gratification has a useful role to play in becoming more disciplined in your spending and budgeting.
Financial experts advice you spend less than you have, and to save money every month.
To do this, you may have to make changes to your lifestyle. While it may be difficult in the beginning, the hard work will pay off in the end.
Simplifying the way you live is key to mastering living below your means. Plus, if you do this you can even save as much as $5,000 in 6 months if needed.
8 Tips to Help you Live Below Your Means
Try these tips and tricks for frugal living.
1. Know how much money you earn
It is not enough to know that you will be getting a salary at the end of the month; you need to be also certain of the actual amount of your take-home pay.
It is surprising how many people do not know the actual amount that is reflected in their bank accounts.
Your employer may be obliged to make certain mandatory deductions from your salary before you even receive any money.
Know what all the deductions that come off your salary are so you will have a more accurate idea of how much money you have each month. The first step to budgeting is knowing your take-home pay.
2. Track what you spend your money on
You need to know what you spend your money on each month and how much. It can be easy for your money to slip away from you and be wasted if you aren’t aware.
Plus, you could just be in denial! Track every penny you spend.
How essential are all the things you spend money on and can you reduce the costs?
For example, consider how much you spend on transport each month. Are there ways you can cut costs?
Would it make more sense to use public transport to help lower the costs of getting to work?
Instead of being the sole occupant on your drive to work, what about starting a lift club and have other passengers help ease the cost of the daily commute?
Or, is your car payment several hundred dollars too much?
Assessing what you spend your money on is also a good way to identify the needless money leaks – those expenses that seem to be a drain on your budget.
It is not only the big expenses that matter. The minor expenses may not seem to have a big impact but if you are spending small amounts very often, they tend to add up and cause a major hole in your earnings.
Here are some thrifty living tips to help minimize expenses.
3. Set up a monthly budget and Stick to It
There are many tools and online resources to help you create a budget that works for you. You can download the budget tracker below to help.
A budget, as long as you stick to it, will help give you more control over your money.
Everyone’s earnings, needs and goals will be different so it is important to have a budget that fits in with your unique situation.
You may find that you will need to tweak your budget in the beginning as you figure things out and see what works for you and what doesn’t.
It may also be necessary to adjust your budget periodically to meet changing circumstances.
4. Cut Unnecessary Expenses
Once you have tracked all the dollars you spend, figure out what can be cut. Take food to work instead of going out to lunch.
Cancel subscription services you don’t need. Cut out your cable for a few months and just use one streaming service instead.
5. Downsize your Lifestyle
It may be that you can’t seem to stick to your means because your lifestyle is just beyond what you make.
If that is the case, you need to downsize your life and your expenses. Housing and cars are the fastest path to this.
If you are spending several hundred dollars a month on your car, sell it and buy something much older and much less expensive. One year of saving a few hundred a month can really add up!
You don’t have to have a fancy car, especially if it is making things stressful or keeping you from making more money.
Another way to reduce expenses is with your housing. If you have an extra room in your house, rent it out for a while. You can even rent your garage!
Or if you are living along in an apartment, find another, less expensive place to rent with roommates.
6. Make More Money
This is the absolute best tip on how to live beneath your means. Just increase your means! If you are struggling to save money each month and are using debt to get by, then find ways to generate extra income.
There are many ways to do this. Rent out a room, sell your unused stuff or drive with Uber or Lyft.
You can even get a part-time, second job. In any case, making more money to increase your means will help get your spending in balance with your income.
7. Get Rid of Debt
As we already mentioned debt is an endless, damaging cycle. If you have credit card or loan debt, get rid of it! It could be causing you to spend more than you have.
Use some of these other tips like making more money or downsizing your lifestyle in order to find more money to pay off your debt as quickly as possible.
8. Know the Importance of an emergency fund
One of the easiest ways to break a budget is to have to spend on unplanned for expenses (hospitalizations and medical bills, funerals, vehicle breakdowns).
It is these unplanned-for emergencies that can leave you debt ridden as it is common for households to turn to credit cards and expensive personal loans if they don’t have en emergency fund.
With an emergency fund in place, the financial knock when an unexpected expense occurs is not so hard to bear. It is also easier to meet your financial health goals and reach financial independence sooner.
You can also try a savings challenge like these options to help yourself pull together an emergency fund.
Final THoughts on Living Below Your MEans
While keeping your spending down can be challenging, you can do it. And, adopting these tactics and tips is worthwhile.
You can improve your financial life and help yourself build a better future, so it is worth the extra effort!
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