What it is and what it’s not
When living beneath one’s means if mentioned in conversation, many assume that it means depriving yourself of the things you enjoy. In actuality, living beneath your means is simply a matter of not spending more money than you earn. It’s a matter of building in a substantial enough financial cushion that when unexpected expenses pop up, you have a surplus of emergency funds to absorb costs. To do this successfully, many financial coaches recommend living on at least 15 percent less than the amount you earn. For example, if your monthly income is $5,000, then your monthly expenses should not exceed $750.
Continue reading to find out how you can begin to live below your means and why you should commit to doing so.
How: Establish a budget
The first step to successfully living below your means is to get an accurate snapshot of your monthly expenses. How much money are you spending each month and how does that compare to your monthly income? A great way to do this is to create a spreadsheet that itemizes your monthly bills and other financial obligations such as child support and spousal support.
How: Reduce your expenses
Once you have a clear idea of what your monthly expenses look like in comparison to your monthly income, it’s time to cut costs to ensure that your bills are 15 percent less than your income. Some easy places to trim the fat include getting a less expensive cell phone plan or cable package. Another easy way to cut costs is to cancel subscriptions and memberships that you are no longer using such as streaming services.
How: Create a savings schedule
Now that you have trimmed the fat and you have some additional cash to play with, it’s a good idea to get intentional about saving some of the extra money that you have on hand. One of the easiest ways to put money away is to come up with a savings schedule.
How: Limit credit card use
One of the easiest ways to fall into the cycle of spending more than you earn is through credit card use because credit gives us the ability to purchase items before we actually have the means of paying for them. Whenever possible, use cash.
How: Resist the urge to max out on housing costs
In most cases, a person’s largest expense is their rent or mortgage. It’s a good idea not to max out on housing-related costs. Finance experts advise that housing costs should not exceed 28 percent of your monthly income.
Why: You’ll no longer be living paycheck-to-paycheck
One of the greatest benefits of living below your means is that it is a way out of the perpetual cycle of living paycheck to paycheck. Life is uncertain and anything can happen. When you are not stretched thin financially, you are in a better position to handle life’s curveballs.
Why: You will be less stressed about your finances
CNBC reported that 30 percent of Americans feel stressed about money constantly. 66 percent of those people reported that they’re overwhelmed because they don’t have enough money set aside for emergencies, such as the loss of a job. When you have money to spare it’s easier to create an emergency savings fund and you’re less likely to stress about your finances.
Why: You will have more discretionary income
Reducing monthly expenses leaves you with more discretionary income to spend on the things you really want. Discretionary income is the money that you have left over after paying for necessities such as rent, groceries, and utilities.
Why: You can get out of debt faster
When you live below your means, paying off your current debt and leading a debt-free life becomes a more attainable goal. It’s difficult to break free from crippling debt when you’re barely treading water as far as your monthly finances are concerned.