YOU WON’T BELIEVE THE RESULTS OF LIVING BELOW YOUR MEANS!
If you are reading this blog, it’s because you care about your financial independence and want financial security in your life. You’ve decided you are tired of not making ends meet every month. Living below your means is an essential element to getting out of debt, getting rich and achieving financial freedom. Learning to live below your means can help you reach your financial goals faster by freeing up more money to pay off debt, save, and retire early.
It’s a basic rule that to achieve your financial goals, you must spend less than what you earn. The majority of honestly wealthy people are guided by frugal living. Millionaires, especially those who have become so on their own, are often masters in the art of living below their means.
It was only a few decades ago that people could not live above their means. When the wallet was empty, you couldn’t buy anything. But today, the spread of credits cards of all kinds have changed everything. Credit allows you to buy things that you normally would not be able to afford. But in addition, disconnecting the payment from the act of purchase makes the expense lighter, easier, and less serious. And that is the catch.
As you already know, credit is expensive. You will not only have to pay back what you borrowed but also the interest. This interest will be added to the amount you have to repay every month, and the bank will also charge you interest on this interest. In total, if you delay in repaying your credit, you risk paying three or four times as much.
If you aren’t living below your means, you are probably in or about to be in debt. You cannot build wealth unless you deeply evaluate your spending habits and get rid of the worst ones. There is no other solution. Bad spending habits are those that prevent you from saving and investing towards your medium- and long-term financial goals. While you have what most people would consider a “comfortable” salary, your spending choices are really what will make or break your financial situation. You could earn $100,000 a year and still live from paycheck to paycheck!
Nowadays, people are more aware of their financial situation and realize that the consumer lifestyle of buying whatever you want, even if it’s on credit can lead to some pretty scary consequences like debt and bankruptcy.
What does living below your means really mean?
Living below your means is simply spending less money than you earn. While it seems like such a simple way to live, it’s a lot easier said than done. However, it is not impossible, you just need a plan, a reason, practice, and a ton of discipline.
When you spend everything you earn, you lose that margin for error and that cushion of financial security. You lose the ability to save money or pay off debt faster, grow your retirement savings, or even take vacations without getting into debt. Whatever reason you want to live below your means, make sure it’s powerful enough to keep you going.
How are you living above your means?
Some of the common money leakages are excessive consumption of alcohol, cigarettes, compulsive purchases of clothes, shoes, latest high-tech gadgets, funding romantic affairs, nightlife, makeup, cosmetics, jewellery, handbags, expensive hobbies, junk food, funerals in some parts of the world, pompous weddings in others, traditional rites, etc.
Of course, it’s usually a few banknotes here and there, little sneaky expenses that seem quite innocent. But every penny counts, and at the end of the day, it’s the little money that makes the big fortunes.
HOW TO LIVE BELOW YOUR MEANS.
KNOW HOW MUCH MONEY YOU EARN.
The first step is to know how much money you are making. After all, you can’t start living below your means if you have no idea what your means are.
It’s important to use your net income and not the actual amount of your salary. The net amount is the money left after taxes and other deductions like health insurance, retirement, and other benefits. This is the actual amount you get to save and spend on bills, entertainment, and other expenses.
If you don’t know how to calculate your exact take-home pay because you don’t know how tax works or because you have irregular income or an irregular pay schedule, look at pay stubs or your past payment history and use an average of your net income for the past few months.
REDUCE EXPENSES AS MUCH AS POSSIBLE.
Once you have a good idea of how much money you will spend, it’s time to review your expenses and reduce them as much as possible below your income. You can do this in several ways, such as calling your service providers to negotiate a better price, switching to another service provider for a lower price, or even eliminating unnecessary expenses like cable, frequent dining and dining. other expenses that you don’t need that you can do without, even if they’re temporary.
CREATE A BUDGET.
If you don’t already have a budget in place, now is a great time to start. If you need some inspiration, look up articles on budgeting.
Having a budget in place when living below your means is crucial for long-term success. With a budget, you have a clear idea of your money flow, and you’ll be able to see where your weak points are so that you can make improvements.
SECURE OTHER SOURCES OF INCOME.
If you’ve cut down your expenses as much as possible and still can’t live below your means comfortably, it’s time to make more money. Again, a lot easier said than done, but making more money isn’t as hard as you might think. There are tons of opportunities, so you won’t have any excuses.
AVOID ADDITIONAL DEBT.
Getting into more debt using a credit card doesn’t count as living below your means. Although technically, you aren’t spending any money right now, you will have to pay that money back at some point, with an interest charge.
It is important to avoid getting into debt or increasing your debt. The more debt you have, the higher your monthly payments will be, which will strain your budget and bring your spending amount closer to your income. When that happens, you lose that buffer and you’ll either have to cut back on other expenses or find another source of income.
- STOP COMPARING YOURSELF WITH OTHERS.
The mentality of comparing your finances to your friends will be your biggest enemy here. What you need to remember is that it’s your life, your money, and your choice. You always have a choice.
I know it is difficult.
You absolutely cannot compare yourself to others because you really don’t know their financial situation. They may be living as if they have all the money in the world, but the reality is that they are struggling to live. The only comparison you should make is between your past and present financial condition while striving to get as much better as you can.
- ESTABLISH AN EMERGENCY FUND.
Creating an emergency fund is crucial to succeeding in living below one’s means. Having an emergency fund means having protection against large and unforeseen expenses like a medical bill or a car repair.
It is best to start saving an emergency fund of 1000$ for everyday emergencies. Once you have that in place, start working on creating a fund that will cover you if you lose your job – which would be 3-6 months of your living expenses. 6 months is more advisable.
The emergency funds are for real and serious financial emergencies and not for impulsive buying such as a luxury holiday or a new wardrobe beautiful. I
- SAVE ON LARGE PURCHASES.
With money saved from reducing your expenses, you can save more money. You can invest this money in whatever you want, such as an emergency fund, retirement, and major purchases like vacations, a car, and home purchases.
Nowadays, people pay for their vacation or a new television on credit without even thinking. Instead of using a credit card, it would make more sense to postpone the purchase until you have saved enough money to cover the expenses without having to pay the interest.
Plus, when using cash to pay for large purchases, it might be easier for you to say no to those purchases since you know how much time, energy, and discipline it takes to save so much money. Always remember that if you can’t afford to buy something without using a credit card, you really can’t afford it.
Living below your means is an incredible way to save more money, pay off debt, build your retirement fund, and achieve financial independence faster. It gives you more freedom with your money by giving you the flexibility to choose what you do with your money instead of living paycheck to paycheck and struggling to make ends meet. Learning to live below your means can be a huge lifestyle change, but with a solid plan and a lot of action, it can be the best choice you’ve ever made.
So, stick with these ideas:
- Living below your means is the pillar on which everything else is built.
- Depending on the lifestyle you adopt, you will be able to move towards or away from financial freedom.
See you at the next post!