Have you ever found yourself spending more than you should, racking up debt, and shrinking your chances of forming a strong savings account? If so, then you’re probably living beyond your means when you could be living below them. When we say, “live below your means,” we’re describing a common money management strategy where you spend less than what you’re bringing in. As a result, you’re able to take care of necessary expenses while still having funds left over to save or invest in the future. Sounds useful, right? The best part is that it only takes a few small lifestyle changes and simple, healthy financial habits to start living below your means and creating a future of financial freedom. 

Assess the Situation

Before you can start living below your means, you’ll need to have a good understanding of your spending habits each month. Consider looking at your bank statements and creating a list of everything you regularly purchase. This will probably include essential costs such as rent, utilities, car payments, groceries, and other necessities. However, it will also include any nonessentials, like the coffee you get from your local café every morning or the streaming service you use to binge watch your favorite shows. Once you’ve got a rough estimate of your monthly spending then you can start figuring out ways to adjust it.

Create a Budget

Now that you’ve identified your monthly expenses, you can start creating a budget to get a handle on your spending. If you’ve never used a budget before, then you might jump to the conclusion that it’s going to place restrictions on your money and keep you from having fun. The truth is that with the right budget, you’ll be able to balance paying for bills and other important costs, saving up for the future, and having some money left over for personal use.

The easiest way to start budgeting is by assigning each expense a category such as wants, needs, and savings. Next, you can assign each category a percentage based on your monthly income. For example, the most popular budgeting method is the 50/30/20 strategy where 50% of your income goes to needs, 30% goes to wants, and 20% to savings and debt repayment. Of course, you can always adjust – and continue readjusting – these percentages until you find the ones that will work best for your situation.

Think Twice Before You Buy

Remember: just because your budget allows you to use money for wants doesn’t mean that you have to spend it all each month. It’s better to stop and ask yourself if you really need to buy something before purchasing it. This way you won’t be tempted to use all your extra cash on impulse purchases that could end up getting you into more debt.

If you really want to start saving and living below your means, it can also help to trim your unnecessary spending. For example, you can limit the number of times you go out to the movies or choose to make dinner at home rather than going out to eat. Not to mention, you might want to look at your subscriptions and consider canceling any of the ones you don’t use anymore. You can even do a double take when making big purchases like considering buying a used car rather than something brand new. Plus, you can always set weekly spending limits to really keep yourself in check and stop compulsive shopping.

Reduce Monthly Expenses

Just as you can reduce unnecessary spending, you can also reduce some of your reoccurring monthly bills. For instance, if your internet provider is charging you a high rate, you might want to review competitors to see if you can find something more affordable for your budget. You can also reduce some of your monthly utility costs with small lifestyle changes such as taking shorter showers and turning off the lights and AC when you aren’t home.

If you’re maxing out your credit card every month, you should also reevaluate how much you’re relying on it. A high credit utilization can not only hurt your debt, but also your credit score and therefore your chances of getting great deals on major purchases in the future. Be sure to spend only the money you have with a credit card and, ideally, use no more than 30% of your credit limit each month. This way you can both improve your credit score and be able to pay off your bill in full each month.

 Pay Down Your Debt

Paying down your debt or, better yet, paying it off completely can help you live below your means by freeing up money for things like savings and investing. This can mean paying off anything from your car, a mortgage, a credit card bill (as we discussed), or student loans. While it may seem intimidating to pay off the costs that have been mounting, you can always start with one and then move on to others. For example, you can start with your smallest amount of debt and move up or start with the largest amount of debt and work your way down. Either way, eventually living debt free is the best way to add to your income and reduce any financial stress that you might be experiencing.

Start with Saving

You’ve probably heard this one many times before, but saving is one of the most important ways to set yourself up for long-term financial health. Whether you’re saving for an emergency fund, retirement, or a major purchase, it’s good to start putting money away into a savings account before using your paycheck to take care of bills and personal spending. If you’re concerned about forgetting to contribute to your savings account, you can even set up automatic transfers. This way you can be sure that the amount of money you want is making its way into savings each month while you worry about other expenses.

Summary

Living below your means doesn’t have to mean restricting your lifestyle and preventing yourself from spending any money at all. In fact, it’s a great way to pay for all your important expenses, use money for fun, and put money away in savings while still having income left over. By making changes to free up some money and getting serious about investing in yourself and your future, you’ll soon find yourself on the path toward financial success.