What Does It Mean to Live Below Your Means?
We all could use some easy hacks to live below our means, but what does it really mean? Simply put, it means that you spend less than you make. The goal is to have funds left over at the end of the month so as not to be living from paycheck to paycheck.
Or you are not going into more debt to pay for your living expenses. Living below your means and be content with what you already have are the way to financial freedom. So, let’s look at how to do this.
Why You Should Live Below Your Means
1. Learn To Be Happy With What You Have
This is a big step to living below your means. Learning to be content with what you have is hard, but essential to meeting your money goals.
We’ve all been exposed to the mass marketing media which is geared toward making us want what we don’t have. The hard part is not letting “them” win, instead you need to be the winner here.
When you go to make a purchase, you may not have planned on, you have to stop and ask yourself, if the purchased item is really needed. It’s your “want vs. need” question. Do I “need” this item as an essential need or do I just “want” it. If the item turns out to be a “want,” then it probably needs to go on the back burner until funds are saved for it.
It’s best to stop trying to “Keep up with the “Jones’s” as you will feel less stress and more content.
2. Save Before Buying
It’s always better to save money for any needed item rather than get something on credit. We all know that buying anything on credit will cost more due to the interest and fees we are charged for the money we are basically borrowing.
Living below your means is also working toward eliminating debt and saving before buying helps meet that goal.
3. Reduces Stress
Money matters can cause a lot of stress, which we all know is not good for our bodies or our peace of mind. Truthfully, money concerns in a family can cause chronic stress to you which can lead to physical ailments.
While it may be hard, getting your money situation under control, will reduce your stress. Having a plan and working toward it is actually easier than being stressed out because you are living and/or purchasing above your means.
4. Peach of Mind
When we are living paycheck to paycheck and rob Peter to pay Paul, there is no chance for peace of mind. On the other hand, when you are spending less than you earn, its much easier on your psyche.
The more you work your plan to live below your means, the more flexibility you will have. And it can lead to other things, such as retiring early or staying home with your kids.
And you will find that you also stop worrying about and keeping track of the days for when you will be getting your next paycheck. This is big peace of mind.
5. Your Values and What’s Important To You
Living below your means sounds simple in theory but can be hard to live through. One reason is because our emotions get in the way—we want what we see and the impulse to buy is hard to resist.
That’s why you need to decide upfront what is important to you and what’s important will probably coinside with your values. Figuring out the big “WHY” you want to get your finances in order helps you stick to whatever plan you come up with.
What are your priorities? Family, friends, being able to travel, retire early, taking your family to Disney, having an emergency fund, saving for a home, etc. Only you can decide what is important to you.
And once you decide what value you put on these things, it will make it much easier to figure out ways to save your money and be on your way to the goals that you chose.
That’s because you’ll know exactly what you are putting your money towards. In reality, you are spending money on what matters to you and cutting expenses on other aspects of your life that don’t mean as much to you.
Most of us have a limited amount of money to use, so to meet goals you have, it means focusing your spending on things that cover your values.
Ways To Save When You Are Living Below Your Means
1. You Got A Raise!
Let’s use your raise for something good that goes along with your values and plans.
Before you adjust to having that extra money in your checking account and therefore spending it, adjust your savings transfer to include your new raise.
This money should be used to meet your emergency fund goal or “my lost job savings fund”, a vacation fund or even a new car fund. Anything that will help you meet your financial goals rather than just haphazardly spending this extra money is where it should go.
Yes, it’s hard to do and could make it seem years before you “see” your raises, but when you look back, you will be glad to see what you accomplished when your savings accounts have hit your goal. This creates big peace of mind.
2. Bank the Bonuses
Yep, you probably already know where I’m going with this. I know that when you get a bonus, your first instinct is to “wooohooo”, lets go by that big ass TV we’ve been looking at. And three months from now, you will wonder where that bonus went.
So, instead, I’m suggesting doing something different that will help you with those things you have already determined are important to you.
Set aside 10-20% of your bonus to spend on what you and your family want and then put the remaining funds in accounts that you have already earmarked for your important goals. You remember those goals that align with your values we talked about earlier in this post.
3. Refunds and/or Windfalls
Since refunds or windfalls of money can seem like “free” money, its soooo easy to spend it. But remember, just like your raises and bonuses, its important to remember what you are working toward and use your tax refund on something that will mean something to you and your family.
Again, set aside 10-20% of this found money, but then put the remaining toward a bigger goal you have. Something like that trip to Disney that you want to take your family on.
4. Auto Withdrawals/Transfers Are A Life Saver
It’s best to have set-up an automatic withdrawal into your savings account as soon as your paycheck hits your checking account.
As I already mentioned, if the funds are in your checking account, it becomes fair game for spending. The trick is to take that money away and put it where you want, before you really notice what has happened.
This can be done with automatic transfers between your accounts. Set these transfers up ahead of time to be done as soon as one of your paychecks hits your checking account. Good intentions are great, but they don’t always become true.
5. Hold Off Period
A hold off period gets used when you feel an impulse to buy something that isn’t on your essential needs list. Your impulse can cost you in ways you may not see right away.
Use your hold off period to help you determine if the purchase you have your eye on is something you really want to spend money on. For instance, start a three day waiting period on any purchases over $100.
This way you won’t come down from the excitement of something you recently purchased and then end up wondering why you made the purchase.
See my post on How To Make A Budget with a downloadable budget worksheet.
6. Check Out Thrift Stores and Yard Sales
Don’t pooh pooh this idea before you try it. If you work it right, these two places can save you a ton of money in your regular budget. I know because I’ve used both and still do when funds are tight.
My hubby and I really used these two places to save when our family was young. We were starting out and of course, were not making the money that we do today, so we had to pinch pennies where we could. Here’s how we did it.
Thrift stores are open year-round so its easier to use them. But at the beginning of the season for yard sales, we made a want list. At different times, we would have things such as a grill, patio furniture, artificial Christmas tree, kid’s toys, and clothes on our list.
We would take this list with us, any time we went to a thrift store or yard sale and would almost always manage to get what was on that list.
Purchasing things this way usually helped us get what we needed for a lot less than we would have spent buying new items—which we couldn’t afford to do.
We once got a Weber grill for $20 that lasted us five years. In my book, it was a win/win for us and the person that was selling it.
Buying at a thrift store, which are usually a non-profit, we are helping our community as that is generally the thrift stores, we would go to. We may not have been able to afford contributions at that time in our lives, but we could help by purchasing what we needed from these stores. Another win/win.
When our kids were little and growing out of clothes and shoes faster than we could turn around, purchasing things for them this way didn’t break our budget. We’d bring the items home, wash them and our kids were thrilled with their new clothes. Again, a win/win situation.
7. Cut Back On Eating Out
Most of us love eating out; I know I do. I guess its not having to prepare the meal then do the clean-up afterwards. But this one pleasure can really add up.
So, I suggest to limiting this “entertainment” to once a week or even to two times a month. Eating at home can save quite a bit and do wonders for your budget.
Same goes for lunch while at work. Brown bagging it will also help your budget. Making your own cup of coffee before leaving your house for work will also save tons of money.
Think about it–$4 coffee every day on your way to work times 20 for the month is $80 a month. That could cover two cell phone bills. See the give and take here.
8. Pay With Cash
For most of us parting with our actual cash in hand is hard to do. It’s much easier to use a credit card because using your “money” isn’t evident until you receive your credit card bill. It’s like not using money—your money.
Paying with cash forces you to acknowledge that you are spending and may prevent you from doing so.
Final Thoughts On Living Below Your Means
Living with less money doesn’t mean you are depriving yourself; it just means you have decided to go for things that mean more to you. You are allowing yourself to align your money/spending with what you value rather than just haphazardly spending.
Spending less in some areas of your life can give you options to reach the goals and values that are right for you and your family. For instance, if a job is lost, you’ll have an emergency fund to turn too.
This gives you a lot of peace of mind and you will be able to sleep at night rather than going crazy wondering how the heck you’ll feed your family.
Living below your means can give you breathing room.
Stay Awesome!
Cher
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