This post was last updated on February 18th, 2021 at 12:57 pm
Learning how to live below your means can help you build the life you desire.
It’s no secret that finding out how to live below your means is a great tool for winning with money. Whether you make $40,000 a year or $90,000 a year; by choosing to live below your means, you will be able to build wealth and get out of debt fast.
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What does it mean to live below your means?
Many people are under the false assumption that they should live within their means. But the truth of the matter is that in order to be successful with money, you must live below your means.
For example: if your family brings in $5,000 every month, then you only spend $4,000-$4,500.
This lifestyle change doesn’t have to mean that you will deprive yourself. It just means you are taking control of your finances in a healthy and mature manner to make your money work for you.
Why you should live below your means
By taking control of your finances, you will be able to pay off your debt, save more money, and build wealth. You can build an emergency fund, get out of debt, and start investing your money.
By living below your means, you will gain financial independence and will no longer be controlled by money. This means no longer living paycheck to paycheck or worrying about how to pay your bills.
5 benefits of living below your means
There are many benefits of living below your means. Here are a few of the most important benefits of living within your means.
The most obvious benefit would be avoiding financial stress. According to this survey, 47% of respondents were living paycheck to paycheck before the pandemic began.
It’s only gotten worse since then, as many people have lost their jobs and their savings have dwindled down.
By learning to live below your means, you will always know that you are able to pay your bills on time, and that you can put food on the table for your family.
By learning to live below your means, you will no longer find yourself anxious with worry about how to pay for an unexpected expense or holiday and birthday.
A survey by Bankrate found that a whopping 59% of people do not have enough emergency savings to cover an unexpected expense of $1,000 or more.
One of the very first things you should when you start to live below your means is to save money for an emergency. This rainy day fund can cover unplanned expenses, such as car or household repairs, a healthcare or dental procedure, job loss, or other unexpected costs.
While Dave Ramsey recommends saving $1,000 to begin with in your emergency fund; in our current day and age it may be wise to save more. A procedure at the dentist alone could cost more than $1,000.
When you live below your means, you can easily build your emergency fund to make sure that your family is ready for the inevitable mishap.
Get out of debt
Another benefit of living below your means is that you will be able to pay off your debts quickly.
Let’s say you make $6,000 a month. If you decide to live on $4,500 a month, you can put 1/2 of what’s left over (or all of it) towards your debts.
At this rate, you will be able to get out of debt much quicker than most others, and be on the path to financial freedom.
Save for things you love
One of the most enjoyable benefits of living below your means is the ability to save more money for things you love.
This means that as you slowly put away money each month, you can start a vacation fund or save up money for college.
You may want to save for the new Xbox console that is coming out next year, or for a trip to visit your family across the country.
The ability to live below your means allows for money for these things that matter the most to you and your family.
One of the best things you can do for yourself and your family is to begin investing. Investing your money is the best way to build wealth and gain financial independence.
By choosing to put aside some of your income each month towards your 401k or IRA, as well as other investments, you are building financial security and peace of mind for your future.
How to live below your means
Now that you know why you should live below your means and the benefits of doing so; let’s find out exactly how to achieve those goals.
Create a budget
Creating a budget for your family that works is extremely important. By making a monthly household budget plan that includes categories such as living expenses, insurance, transportation, food, and more; you are choosing to track your money so that you know where it’s going.
You can use Dave Ramsey’s suggested household budget percentages to get an idea of what percentage of your income you should plan to use for each of your budget categories.
It may take a few months to adjust to your new budget, and you might go over the budget many times. But you will learn where you need to make adjustments to make the budget work for you.
We recommend putting together a budget binder (you can use many of these free budget printables) to keep track of your finances.
Change your mindset
We live in a culture that feeds off of social media standards and unfortunately that leads many people to feel that they must keep up with the Jones’.
They feel that they must buy that new car, must have brand name clothes, must attend all the parties.
They feel that if they work hard, that they deserve to get these things. They find it hard to say no when they can just throw it on a credit card to pay off slowly later, or take out a financial loan.
But ultimately, if you want to live below your means, you have to change this way of thinking. You will never learn to live below your means until you change your mindset.
By surrounding yourself with others who also try to limit their lavish lifestyle choices; you will also learn how to live a more frugal life.
By changing your thoughts from, “I’m owed this right now for all of my hard work,” to “I can start saving some money each week to purchase it in full later,” or “I can find additional ways to bring in more income so I can purchase it without regret,” you can improve your life.
Mindset is so important because a positive motivational mindset will help you be content with the things you do have instead of always looking ahead to something new and shiny.
One of the key ways to start living below your means is by shopping less. By shopping less, you will be saving more money each pay period and be on the right path to living below your means.
Have you ever walked into Target to pick up one item, then left with a bill of $150 or more? It happens quite frequently to many consumers.
So maybe you start utilizing Target drive-up pickup to avoid impulse purchases. Maybe you decide to set aside $50-100 in your budget each month that you can use at Target, so that you can spend money without feeling guilty (but also without going overboard).
Some other ways to save money are to shop the sales and clearance aisles. Consider buying second hand items or getting hand me downs for your kids.
One of my favorite ways to save money is by shopping with Rakuten. It’s a browser extension that I use on my computer for free that lets you know if there are any promo codes or coupons for any online purchases you are going to make.
It also gives you cash back for eligible purchases through online shopping or shopping at the store. They offer cashback at hundreds of popular stores that I shop at frequently, such as Walmart, Amazon, Target, Kohl’s, The Children’s Place, Home Depot, and many more.
The best time to use Rakuten is when you are purchasing a big ticket item or when shopping for the holidays. You can save a lot of money by getting cashback.
If you want to try Rakuten out, you can earn $20 by signing up with my special link. You must make a purchase of $25 to receive the bonus.
Live a frugal lifestyle
There are many ways to start living a more frugal lifestyle that can help you live beneath your means. You can find a few tips from the Great Depression.
How do you become more frugal? It’s all in the small day-to-day changes you make in your lifestyle. Start by only buying what you really need.
These changes can be as simple as packing your own lunch for work, making your own Starbucks drinks at home, cooking more instead of relying on take out, or even ditching the cable to use streaming services instead.
To find out more frugal hacks, check out our list of 25 Things to Stop Buying to Save Money.
Stop using credit cards
Credit card debt can be a crippling expense every month. According to Elite Personal Finance, the average American has $5,315 of credit card debt as of 2021.
This can lead to $100’s of dollars of payments every month that are straining your budget. By choosing to get out of debt, you can pay off all of your account balances and find financial peace.
We recommend using your tax refund to pay off your credit cards, and closing the accounts with high interest rates. Then it’s important to stop using credit cards and to start only paying in full for things you would like to purchase.
You can use our debt worksheet to keep track of your account balances as you pay off your debt.
Increase your income
If you find that it is impossible to cut anything else from your budget, and that you are still living beyond your means every month, then you should be looking for ways to increase your income.
By increasing your income, you will allow yourself more room in your budget, as well as make it easier to live beneath your means.
I’m a firm believer in having multiple streams of income. This can come in many different forms.
You can work a part-time job on the weekends or evenings, outside of your regular 9-5 job. This can be done by picking up shifts as a bartender or server in a restaurant.
You can also consider investing in real estate properties, mutual funds, and stocks. (Don’t forget to be putting aside money in a retirement fund, such as a 401k or IRA, as well).
By increasing your income, you will find that reaching your financial goals becomes much easier. But remember – it’s important to not increase your spending habits as your income grows.
Find ways to get started making $1000 a month or more.
It is possible to start living below your means and still have the life you want. Living below your means doesn’t have to be a death sentence to your lifestyle. You just need to make healthier choices.
Recommended money saving tools
Undebt.it is our favorite free tool to keep track of your debt payments and progress using an online spreadsheet.
Another great resource is to use $5 Meal Plan. With $5 Meal Plan you get a pre-made weekly meal plan and shopping list to help you save time and money with your grocery shopping.
Grab your free credit score to stay up to date with your financial health. Sign up for Credit Karma here at no cost. I’ve used Credit Karma for over five years.
Ibotta earns you cash back anytime you shop online or at brick-and-mortar stores such as grocery stores, Lowe’s, Home Depot, Domino’s, Petco, Sephora, Target, Gap, REI, and many more. Sign up for Ibotta to start earning money back today.
Learning how to live below your means can change your life. How have you changed your money habits? Leave a comment below.