Living below your means is the key to financial stability, success, and happiness. It means spending less money than you earn and prioritizing saving. It’s not about deprivation or sacrificing your happiness. Thriving, not surviving is about taking control of your finances and making decisions that align with your financial goals. In this guide, we will explore key strategies to help you live below your means without feeling deprived.
Create a Budget and Stick to It
To thrive rather than simply survive, you must create a budget and stick to it. A budget enables you to keep track of your income and spending, make informed financial decisions, and properly manage your money. Choose a budgeting style that works for you. It should resonate with your financial goals. Here are a few popular budgeting methods:
The 50/30/20 Budget: This budgeting approach involves allocating 50% of your income towards needs (such as housing, utilities, and groceries), 30% towards wants (such as entertainment and dining out), and 20% towards savings and debt repayment.
Writing and working with a 50/30/20 budget is a simple, realistic way to manage your money.
Zero-based Budgeting: With this method, you assign every dollar of your income a specific purpose. You aim to have zero dollars left at the end of each month by allocating all your income towards expenses, savings, and debt repayment. It’s a bit different than most, but the zero-based budgeting approach works great for some families.
Envelope Budgeting: The envelope method of budgeting involves using physical envelopes or digital tools to allocate cash or funds for specific categories. You place a predetermined amount of money in each envelope, and once the money is gone, you cannot spend any more in that category until the next budgeting period.
Saving and Investing
Living below your means enables you to save and invest for the future. By prioritizing saving and investing, you create stability and financial security. Here are some tips on how to save and invest while living below your means:
Save Off the Top – One of the most effective ways to save is to automate your savings. Set up automatic transfers from your checking account to a savings account or investment account. By saving off the top, you prioritize saving before you have the chance to spend the money. Treat your savings as a non-negotiable expense and make it a priority.
Pay Yourself First – When you pay off a debt or finish making payments on a major expense, such as a car or a smartphone, continue making the same monthly payments but direct them to yourself. Allocate these funds towards savings or investments. By paying yourself first, you build a habit of saving and investing.
Build an Emergency Fund – An emergency fund is a crucial component of financial security. It provides a safety net for unexpected expenses and emergencies. These can include medical bills, car repairs, or job loss. Aim to build an emergency fund that covers three to six months’ worth of living expenses. Start by setting small savings goals and gradually increase the amount as you make progress.
Pay Down Debt – Paying down debt is another important aspect of living below your means. High-interest debt can severely hinder your ability to save and invest. Prioritize paying off your debt by allocating extra funds towards debt repayment. Consider using the debt snowball or debt avalanche method to accelerate your progress and become debt-free faster.
Avoid Lifestyle Inflation
Lifestyle inflation refers to the tendency to increase your spending as your income increases. It can be tempting to indulge in luxuries and unnecessary expenses when you receive a raise or promotion. However, lifestyle inflation can thwart your ability to live below your means and thrive rather than survive. Here are some strategies to avoid lifestyle inflation:
Stay Aware of Lifestyle Creep: Be conscious of lifestyle creep and the temptation to increase your spending as your income rises. Rather than upgrading your lifestyle right away, reconsider your financial goals and priorities. Maintain a frugal mindset and resist the urge to spend more simply because you can.
Practice Mindful Spending: Practice mindful spending by aligning your purchases with your values and long-term goals. Before you make a purchase, consider whether it will offer you genuine joy or add to your overall well-being. Consider the long-term impact of your spending choices and prioritize experiences over material possessions.
Set Financial Goals: Setting clear financial goals can help you stay focused and motivated to live below your means. Determine your short- and long-term financial objectives, such as saving for a down payment on a house, repaying college debts, or retiring early. Keep your goals in mind whenever you are tempted to overspend or deviate from your budget.
Seek Alternative Ways to Save
Living below your means doesn’t have to mean sacrificing enjoyment or experiences. There are many alternative ways to save money and still enjoy life. Here are some strategies to consider:
Utilize Coupons and Discounts: Take advantage of coupons, discounts, and promotional offers to save money on your purchases. Look for coupons online, sign up for loyalty programs, and compare prices before making a purchase. By buying strategically, you can save a good amount of money without compromising quality. If this idea appeals to you, check out our article on extreme couponing!
Practice Minimalism: Adopt the minimalist idea by simplifying your life and concentrating on the fundamentals. It’s an excellent way to lower your spending, simplify your life, and value experiences and relationships over material belongings.
Explore DIY and Homemade Solutions: Explore do-it-yourself (DIY) ideas and handmade solutions to save money. There are countless ways to save money by being resourceful and creative, from preparing meals at home to making your own cleaning supplies. And by going DIY, you not only save money, but you also learn new skills.
Overcoming Challenges and Staying Motivated
Living below your means is not always easy, and challenges may arise along the way. Yet, with the right mentality, you can overcome these obstacles and stay motivated. Here are some tips to help you overcome challenges and stay motivated:
How to Deal with Unexpected Expenses: Unexpected costs can derail your budget and make it difficult to live within your means. Build an emergency fund to provide a safety net for these unexpected expenses. When faced with an unexpected cost, reassess your budget and identify areas where you can temporarily cut back to cover the expense.
Maintain Discipline and Willpower: Living below your means requires discipline and willpower. Stay committed to your financial goals by reminding yourself that living below your means has long-term benefits. Practice self-control and avoid impulsive spending decisions. Develop habits that will benefit your financial well-being.
Celebrate Milestones and Achievements: Celebrate your financial milestones and achievements along the way. Recognize the progress you have made and reward yourself for reaching your goals. Celebrating milestones can help you stay motivated and reinforce the positive impact of living below your means.
Living below your means involves striving to thrive, not striving to survive. While it may seem daunting at first, it is truly a more simple way to achieve your financial goals. By creating a budget, saving and investing, avoiding lifestyle inflation, overcoming challenges, and staying motivated you can pave your road to financial stability and thrive!