Living below your means is one of the most common pieces of financial advice that many personal finance experts rave about. But it is easier said than done. Doing so in our daily lives requires self-discipline and consistency. You cannot succeed and notice a significant impact on your finances by doing this in a week or a month.
Learning to live below your means requires so much more than just buying a beer instead of wine. You need to go the extra mile for this to work and improve your finances.
Below, I'll explore how you can start living below your means, some tips to lower your monthly expenses, and some ways to make extra money so you can have a better financial future. Let's get started!
How to Live Below Your Means
Want to learn the steps to live below your means? Check out these steps to help you get started. Wether it's curbing poor spending habits, decreasing credit card debt, or paying cash instead of swiping – these tips will help you start living below your means.
Set Financial Goals and Budget
The primary key to start living below your means is by setting first your financial goals and create a budget. Identify clearly what your goals are and your purpose of living frugally. Knowing your financial goals will give you a clear direction and focus on how to manage your finances. Once you know what your financial goals are, then start creating a budget.
As I always mention, creating a budget does not need to be complicated to be effective. In creating a budget, first, you need to determine your monthly sources of income. Then, list down all your monthly expenses, including your savings. You can also include your investments and debts.
Once you listed all the necessary details, you can now start doing the Math. First, add all your income. Next, add all your expenses and debts, then subtract the sum of your expenses and debts from the sum of your income.
Creating a budget provides you a clear vision of where your money goes and helps you identify if you are overspending or not. You can make some adjustments to your budget if necessary.
If you spend money frivolously, creating a budget is a perfect start to reach financial success.
Track Your Daily Expenses
Once you’ve already created a budget, you might want to dig more with your spending. And to help you do that, you will need to track your daily expenses. You can use a spreadsheet or various budgeting apps to do this.
Keeping track of your purchases is an effective way of preventing yourself from overspending and irrelevant expenses. So make sure to spend your money wisely.
Related: How to Save $10,000 in a Year
Reduce Your Expenses
Reducing your essential living expenses can help to get your personal finances in check. You'll then be able to use your extra money to pay down student loans, car payments, or your mortgage payment. Lowering your monthly expenses is a great way to save money and put yourself in a stronger financial situation.
Learn to Cook
Cooking your own meals is one of the simplest tips on living below your means, yet most people often neglect this.
But have you ever thought that cooking your meals at home will save you more money than eating outside at fancy restaurants, fast food, or having your food delivered? Though the latter is more convenient. Cooking your meals at home offers advantages as well. Not only will it help you to save money, but it is usually a much healthier option than eating out.
To help you become more efficient in planning and cooking your meals, I highly recommend creating a weekly meal plan. This enables you to save more time, money, and energy on thinking about what to cook and eat every day.
Don’t underestimate the power of cooking your own meals at home – this can go a long way and will help you save more money in the long run.
Grow Spices and Vegetables at Home
Home gardening is one of the smartest and effective ways of reducing your expenses and start living below your means.
There are tons of methods on how to grow your herbs and spices at home, no matter how small your space or area is.
Doing this allows you to have a fresh and free ingredient added to your meals. Also, think of how much the vegetables or spices cost at the grocery store. This is an excellent way to spend less money and increase your net worth over time.
Walk if you can, as this will help reduce the cost spend on your transportation. For example, if your apartment, school, or workplace is just a few blocks away, instead of driving your own car or riding a bus – WALK.
Aside from saving money spent on your bus fare or gas, you are also doing yourself a favor by considering walking as part of your daily exercise. Remember, health is wealth.
Shop at Thrift Stores
Another way of living below your means is through buying at thrift stores. Thrift stores can be a source of great items at an affordable price. You can shop for clothes, shoes, houseware and many more. You can find and buy a lot of fashionable and branded clothes at a great price. Some even still have tags on them.
Find Second Hand Items
This idea might be pretty similar to shopping at thrift stores. However, thrift stores are not just the only way to shop or look for 2nd hand items. Social media apps like Facebook can also be a great alternative. You can find many Facebook group pages that sell their used books, stuff, or furniture at an affordable price. You can get a great deal in there as well. Some might even offer their stuff for free!
Another way of looking for 2nd hand items is through your neighborhood. You can walk around your community, and you might find valuable items stuck in their garage that they don’t use anymore but can still be of great use for others or for yourself.
Tip: You can flip those items (example: furniture) you got and sell them. This is a great idea to earn some extra cash.
Buy Commonly Used Items or Food in Bulk
When buying groceries, I highly recommend buying in bulk to avail more discounts and save you more time and energy going back and forth to the grocery store. However, buying in bulk is preferred for items you commonly use, like toilet paper, paper towels, and other grocery items.
Availing a loyalty card on your favorite supermarket where you frequently shop can be a good idea as well, and once you gather enough points, you can use those as discounts for your next grocery shopping.
Take Advantage of Lower Priced Alternatives
Spending money on name brand goods can make reaching financial freedom more difficult and it will take longer.
Instead, consider purchasing generic alternatives that will help you start living below your means and have a stronger financial future.
These generic products will often cost around 20% less than name brand options and they have a very similar quality and taste.
Avoid Unnecessary Spending or Impulse Purchases
If you are serious about reducing your expenses, you might want to remind yourself of the stuff you bought as a result of impulse buying.
Unnecessary spending can significantly contribute to the increase in your expenses. And given that those items are not important, we can consider it a waste of money.
And to help you prevent impulse buying, practice the 72-hour rule. This rule means before you purchase a non-essential item, you need to wait for 72 hours before considering buying it. This method will help you reevaluate if you still want to buy the item.
Another effective method to avoid overspending is through the Envelope Budgeting Method. This method helps you stick to your budget by spending only the money tucked inside the envelope assigned in a specific spending category.
The Envelope Budgeting Method imposes discipline and helps maintain your expenses within your monthly budget limits.
Impulse purchases can lead to credit card debt and your monthly payments can start to stack up from your spending.
Related: How to Be Fiscally Responsible
Cut Unnecessary Subscriptions
Another way of lowering your expenses is cutting some of your subscriptions. Remember you are paying monthly or annually for these subscriptions, and if you weren’t able to utilize the service or product, it might as well be better to end it. Doing this helps you save more money and set it aside for more important aspects of your finances.
Pay Yourself First
Paying yourself first means that you need to save first before you spend. This technique will help you save effectively and avoid unnecessary spending with your money.
Paying yourself first is one of the best ways to save money and live below your means.
To get started, you'll want to setup automatic transfers from your bank account or paycheck every time you get paid.
An example of paying yourself first would be setting up an automatic transfer from your checking account into a savings accounts each paycheck.
Paying yourself first doesn't just mean saving, however. It also means investing. If you want to reach financial independence then you likely already know the importance of letting your money work for you. If not, you'll want to learn some of the basics of investing so you can start to make money while you sleep.
Manage Credit Card Usage
Commonly, I would always advise not to use a credit card and that it's better to pay cash. However, in some cases, using a credit card also offers many advantages, as long as you pay your credit card bill on time. Doing so can help improve your credit score. This offers many benefits like paying lesser interest rates, getting approved for higher credit card limits, a better chance for loan approval, and many more.
Most credit card companies also offer various perks like cashback, discounts, and reward points to help save you more money. But keep in mind to not be too blinded with all these perks and be mindful and wise in using your credit cards and pay your credit card bill on time.
The key here is to use the card wisely. This doesn't mean to spend money unnecessary expenses or big ticket items just to earn rewards. You're still spending money after all.
Using a credit card can be a good way to pay your regular bills as long as there is no fee associated with it.
Related: Truebill vs Mint
Avoid Bad Debts
Basically, there are two types of debts. There is what we call a “good debt” and a “bad debt.”
Good debt refers to money owed for things that can help build wealth or increase income over time, like a business loan or a mortgage.
Bad debt refers to money owed for things that do not help increase your wealth or purchasing goods that have no lasting value. Some examples of bad debts are credit card debts and car loans.
So as much as possible, avoid having bad debts or prioritize paying them on their due dates to prevent piling interest rates and damage to your credit score.
If you want to start living below your means and stop living paycheck to paycheck, you'll want to avoid these bad debts like a brand new car if possible. Instead, you might consider purchasing a used car to avoid more debt.
Stop Keeping Up with the Joneses
Unfortunately, there comes the point in our lives where we try to impress other people and tend to buy stuff that we can’t even afford or is out of our budget, which may lead us to greater debts.
If one of your goals is to live below your means – stop keeping up with the Joneses. Instead, only buy the stuff that you truly need and that is within your budget.
A new car or some home improvement projects might be tempting but it's not going to help your savings account and reach financial success.
Strive for a Minimalist Lifestyle
This tip may sound overwhelming at first, but this brings a more valuable message. Striving a minimalist lifestyle can improve your finances and overall well-being.
This helps you to spend less and only accumulate essential things. Though this might be easier said than done, but once you start incorporating minimalism into your life, you will learn how to let go of the things that matter the least and appreciate more the stuff that matters the most. There will be less stress, a clearer mind, and more freedom when you practice frugal living.
Establish an Emergency Fund
An emergency fund is critical for anyone. This will help you have more financial security and not stress over unexpected expenses.
While some of your monthly costs will be fixed expenses, there will be some that come up in an emergency and make building wealth more challenging if you don't have an emergency fund.
So how much should you save?
For most people, anywhere from 6-9 months of your normal monthly expenses is a good starting place. But even a couple hundred dollars is a good start.
Increase Your Income
Living below your means can be challenging for those with a low income.
Depending on how much money you make, one way to ease the difficulty is by increasing your take home pay and monthly income.
There are many methods to boost your income – starting a side hustle, getting a second job, or investing your money. Below I'll explore some of my favorites.
Start a Side Hustle or Business
If you want more financial security, increasing your monthly income through a side hustle or business can be an excellent idea.
This can help you start living below your means because you can save much more money or pay off high interest debt.
Ask for a Raise
For those working a traditional job, asking for a raise can be a good way to better your financial life. You don't want to leave money left on the table, so it doesn't hurt to ask for a bump in pay!
Find a New Job
Picking up a second job can be a great way to pay down debt. Finding a new job can often lead to an increase in pay of over 20%. What're you waiting for? Start searching today.
Final Thoughts on How to Live Below Your Means
These are a few out of so many ways to live below your means, and with the right mindset and determination, your goal to be more financially free and stable is not far from reach.
It will not happen overnight, and it takes consistency and the will to achieve. There may be obstacles and temptations along the way, but if you are geared and loaded with proper advice and tips, it will be easier for you to overcome them and finally reach your financial goals.