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14 Effective Ways to Live Below Your Means

a family living happily below their means

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What does it mean to live below your means? 

Simply put, living below your means is when you spend less than you make. You have money left over each month to put towards your financial goals.

Spending less than you earn helps you stay out of debt and helps you reach financial independence. You’re less likely to live paycheck to paycheck when you learn to live below your means.

In this article, we’ll go over how to tell if you’re living above your means, the benefits of living below your means, and ways to live below your means. 

Let's jump right in.

Signs You’re Living Above Your Means

Living above your means is when you spend more than you earn. There are several signs that you might be living above your means, and this can be risky long-term as you may find yourself deep in debt or in a situation where you don’t have enough money to cover an unexpected expense. Living above your means may also mean that you won’t reach your financial goals because you’re spending every dollar you earn as well as spending money you don’t have.

Here are some indicators that you may need to re-evaluate your financial situation.

Your Emergency Fund is Low or You Don’t Have One

An estimated of only 39% of Americans can cover a $1,000 emergency. If your emergency fund is low or you don’t have one at all, you may be spending too much money and not saving enough. 

Financial experts generally agree that having three to six months of living expenses saved in an emergency fund is wise. Saving at least $1,000 in a savings account for unexpected expenses is also wise.

It makes sense to store your emergency fund in a separate bank account. CIT Bank has a Savings Builder Account, which makes for a great emergency fund. You’ll have easy access to your money for when you need it and earn up to 20 times the average interest rate of a brick and mortar bank.

You Have Credit Card Debt That You’re Struggling To Pay Off

You may be living above your means if you have excessive credit card debt that doesn’t seem to go away. Having credit card debt that takes you over a year to pay off is a possible sign that you’re spending too much. 

Reel in credit card debt by making more than the minimum payments each month and thinking twice before you pull out your card to buy something.

This article goes over two methods of paying off debt and shows an example of how much you can save by applying just a small amount extra to your minimum payment each month.

You Have Trouble Saving Money

One way to save money is to automatically transfer a small amount of cash from your checking account to your savings account with each paycheck. If you’re having trouble saving any amount of money, you may be living above your means.

Set up automatic transfers to help remedy this. Starting with even $10 per week can go a long way to help teach you good saving habits.

As you adjust your financial situation to spend less and/or earn more, you can potentially start saving more each week to better your financial future.

You Buy Things You Can’t Afford

You may be living above your means if you find yourself buying things you can’t afford. This could be lavish clothing, expensive meals out, various items on Amazon, or anything you frequently buy that leaves you further in debt.

If you’re an impulsive spender, check out this article for ideas on how to curb your impulses. Getting your spending under control is an important aspect of living below your means. Understand the difference between things you need and things you want. Reduce purchasing things you want by reminding yourself of the things you already own.

Benefits of Living Below Your Means

Living below your means has benefits that affect several aspects of your life. Let’s go into three huge benefits.

Reduced Financial Stress

Reduced financial stress means you’re able to sleep better at night, knowing you have enough money to cover all of your expenses. Financial emergencies, such as a trip to the ER or a broken-down car, will be less scary when the bill arrives because you’ll have saved money up for these occasions.

Reduced financial stress also means your relationships are more sound. When you and your spouse live below your means, you’ll both have less money worry, and that can lead to a more cohesive marriage. Getting on the same page as your spouse financially is an important aspect of a healthy marriage.

Reach Your Financial Goals With Greater Ease

When you spend less than you earn, you’ll have a surplus of money each month, which allows you to reach your financial goals with greater ease. Your financial goals may involve paying off your credit cards, saving for your children’s college, buying a house, or going on a dream vacation. You may also have a goal as simple as no longer living paycheck to paycheck.

Whatever your financial goals are, living below your means will help you reach them more successfully.

More Flexibility Around Work

One can always find ways to earn more money, but perhaps you don’t want to. Perhaps you’re interested in working an easier job or a job that requests fewer hours from you. When your living expenses are lower due to spending less, your income requirements each month are also lower.

This gives you flexibility in what you do for a living. You may be able to work part-time or live off of one or more side hustles. Flexibility around work can give you more free time, giving you more time to pursue hobbies and other dreams.

So if reducing how much or how hard you have to work is at the forefront of your mind, then cutting your spending and lowering your expenses may be one way to achieve this.

How To Live Below Your Means

There are many steps you can take to better your financial life. Let’s go over various methods on how you can start living below your means.

1. Create a Budget

The first thing to do is to create a budget. When you create a budget, you enable yourself to set financial goals for the month. You can see where all of your money is coming from and where it's all going.

Revisit your budget as frequently as you need to. This may be annually, quarterly, or monthly depending on your situation.

Start by figuring out how much money you have each month by adding up your income sources. Many believe in the 50/30/20 rule, which states 50% of your money should go towards Needs, 30% to Wants, and 20% should be saved.

By creating a budget, you're on your way to living below your means because you'll always know how exactly to spend your money going forward. Additionally, you can also create a budget as if you have a low income.

By creating a low-income budget, you'll maximize your savings because while your income may not be low at all, you'll act as if it is, forcing you to cut back all around. By pretending to be broke, you'll bank more and more money aside monthly.

2. Track Your Spending

After you've created a budget, start tracking your spending. When you make a monthly payment to your rent, mortgage, utilities, and other regular bills, write down the amounts. By tracking your spending, you'll see exactly how you're spending money each month.

At the end of each month, add up all of your spending, and identify where you can cut back. If you can cut your spending each month on specific things, you'll have more cash to save or allocate towards debt, such as credit card debt.

For example, if you're spending a lot on going out to eat, you could curb your spending by going out to eat one less time per week. This could save you over $100 per month alone, putting that extra money in your pocket for other use.

Things to track your spending on include:

  • Grocery bills
  • Utility bills
  • Entertainment budget
  • Meals out vs. eating at home
  • Subscriptions that you might not be using as much
  • Online shopping

Tracking your spending will help you live on less money and, in turn, help you live beneath your means.

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3. Automate Your Savings

Once you're spending less money, another financial move to make is to automate your savings. To do this, set up an automatic transfer between your checking account and your savings account each pay period or each month.

A CIT Bank Savings Builder Account is an excellent place to store your savings. You’ll earn up to 20 times the interest rate of a typical brick and mortar bank and have easy access to your money for when you need it.

The benefit of automating your savings is that you don't need to think about it anymore; that is, by putting your money on autopilot, you'll save consistently.

If your savings account has at least six months of living expenses, consider setting up automatic investments from your checking account to an investment account . Your money beyond your savings can grow faster with a solid investment plan.

Aside from automating your savings, you can also automate all of your finances. This way, you're automatically paying your bills, including debts like credit card debt, personal loans, student loans, and similar.

4. Lower Your Monthly Expenses

Some monthly bills can be negotiated or lowered through practical means. For example, you can generally negotiate your cable, internet, phone, and auto insurance bills. 

Some of us may not like the idea of going back and forth with a company and trying to reduce our rate. If you fall into that crowd, check out the app Trim. Trim will negotiate your bills for you and help you find subscriptions you may no longer be using.

Reducing other expenses, such as your utility bills, cell phone bills, transportation expenses, and the amount you spend on memberships such as a gym membership, will also help you in the long term.

If you have a health insurance plan that can be adjusted, you can consider lowering your premium by raising your deductible or changing your coverage options. Doing so should be based on how much coverage you feel you need or are using.

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5. Drive a Used Car

According to LendingTree, the average new car monthly payment is $563. For used cars, the average payment is $397. You can reduce these payments further by buying a used car for less money. 

A new car loses around 20% of its value after the first year, meaning if you buy a certified preowned car that’s one year old, you could save up to 20% off the price. That means a $30,000 car is now $24,000, or a savings of $6,000.

Buying preowned or used cars means lower monthly car payments. If you purchased a $10,000 used car and put $1,000 down and financed the rest over 48 months, you would only pay $199 per month, assuming a 3% interest rate.

6. Downsize Your House

You may have purchased a house that’s more than you need or can afford. If your mortgage payment is too high and it’s causing you to have financial issues, it may be time to consider moving to a smaller or less expensive place. 

Your combined monthly mortgage, taxes, and insurance should add up to less than 28% of your gross monthly income. If you’re much higher, you may be living above your means. You can attempt to increase your earnings or cut back in other areas. If nothing seems to work, then it might be time to look around for a new place.

Moving has expenses in itself, and there can be a hassle to buy a new house and sell an existing house. Downsizing may be one of your last resorts if no other methods to live below your means are working.

7. Build an Emergency Fund

Living below your means also means having an emergency fund that can cover the times when an unexpected expense occurs or if you end up living without an income for some time. 

Having at least $1,000 in your emergency fund at all times can cushion minor setbacks. That said, financial experts generally agree that it’s wise to store three to six months’ worth of living expenses in a safe place, such as a high-interest online savings account.

One way to start building an emergency fund is to determine an amount of money you can save each week and then transfer that money to your savings account either weekly or whenever you get paid. Alternatively, picking up a temporary side hustle to raise money fast has its benefits.

8. Create Multiple Income Streams

Another way to live below your means is to raise your income so that you have more money to live off of. You can raise your income through several means, including taking on a side hustle or building passive income.

Side hustles are a quicker way to earn more money but generally require more of your time. Passive income starts as a trickle but will eventually be money that you earn on autopilot. 

Some side hustles can turn into passive income, combining the best of both worlds. An example of this is blogging. Learn how to blog for profit in this beginner’s guide.

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9. Don't Rely on Credit Cards

While having a credit card has benefits, relying on your credit card too much can hurt your financial well-being. Focus on paying off high-interest credit card debt as soon as possible. 

If you struggle with swiping your card too much, consider locking up your cards until they’re paid off. Use cash whenever possible and work out a plan to tackle your debt. Check out this article that talks about how to curb impulse spending.

10. Understand Need versus Want

Every time you’re about to make a purchase, ask yourself if you need it or do you simply want it. Needs include things like:

  • Housing
  • Food
  • Utilities
  • Transportation
  • Health Care

Most other things are wants, and if you’re struggling to live below your means, focus on your needs and stay away from buying too many wants. Remind yourself of everything you already have and find enjoyment in those things.

Understand that marketers constantly show us things that they want us to buy. Think commercials, ads, and billboards. The thing is, we don’t need most of these things at all. Once you’re able to separate your needs from your wants, you’ll be on the path to spending less money and building more wealth.

11. Curb Impulsive Spending

Do you sometimes see something and then immediately buy it before you had a moment to think? This is called impulse spending. This activity is very common on the internet on websites like Amazon, where you can simply click one butting and purchase something.

One easy method to curb impulse spending is to delete your credit card information from every online store. This will add a few manual steps to each transaction to slow you down and allow you to think twice.

Additionally, ask yourself, “How will this purchase affect me in 30 days? 90 days? 6 months?” If you feel that there’s no long-term gain for the purchase, then it’s likely you don’t actually need to buy it.

Check out this guide on how to curb impulse spending.

12. Pretend Like You’re Broke

Pretending like you’re broke is a mindset that will help you save money with every action you take. When you act broke no matter how much you earn, you’ll maximize your savings month after month because you’ll spend as little money as possible.

It’s tough to get into this mindset, but the rewards are worth it. You’ll lock every dollar away to use in creating more financial security for yourself.

13. Enjoy What You Already Have

Avoid buying new things by enjoying the things that you already have. We accumulate stuff as human beings, and often times we can still find enjoyment in the things we’ve accumulated over the years. 

Buying new things all the time is an expensive habit that can cause financial stress and put us in debt. Instead, find enjoyment with what you already have and don’t continuously buy new things that won’t serve to make you happier anyway.

14. Learn More About Personal Finance

Through reading books and blogs, you can learn a lot about personal finance. When you better understand how money works, you’ll be less likely to have financial struggles. 

You’ll save more, invest more, pay off debt, and spend less. You may also find ways to earn more money. Financial stress is reduced when you have a better education around money.

Check out Clean Cut Finance’s recommended books to start learning more about how to make your money work for you more effectively.

Wrapping It Up

In this article, we discussed how to live below your means and why it makes sense. Through smart savings and reducing your spending, you’ll have a more financially secure life. You’ll be able to reach your financial goals and live with less stress.

What are some methods you’ll use to live below your means?

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17 thoughts on “14 Effective Ways to Live Below Your Means”

  1. I’ve been living below my means for a while now and have managed to save a lot of money. I really don’t need a lot and I think people tend to spend money on things they don’t necessarily need.

  2. These are great suggestions. We have done many of these and are financially secure and close to retirement.

  3. This is a timely post. I need to be more serious in spending less money but I think my hubby does that so maybe that’s why I a bit lazy.

  4. Great post. The best advice for me is track your income. When you realise how much you waste and add up how much you could save in a year by not spending on X it inspires me to carry on saving. Lots of good advice, thanks for sharing.

  5. These are honestly really good suggestions, lol it’s like god brought me to this post. Creating a month bucket, tracking your spending and avoiding slurges is sooo necessary. I’m in my early 20’s and I’m young but I want a financially secure future and I need to start doing these from now.

  6. This post is so insightful, especially now with everything going on with the pandemic. My favorite point in this article is downsizing your house.
    As a minimalist, I have been making plans to live in a small house for a while now. Thank you for sharing.

  7. Mayuri

    These are some great tips to save and live below our means. It is so important to have a proper financial planning so that you don’t end up your savings due to unforeseen events.

  8. Lily

    These are all super smart tips to being financially savvy. Super important especially during emergency situations!

  9. Agnes

    I consider myself as a budget freak. I always plan and get products in the market for free or just a few dollars for me to spend. I love this post!

  10. blair villanueva

    I agree with all your advice here! Together with my husband we agreed to sell our car, and just bough a second-hand. Now we don’t have to pay the car loan, and I’m happy with our old car.

  11. Monidipa

    Spending less than you earn doesn’t mean you can’t enjoy life and have nice things. It forces you prioritize and be intentional about your spending to acquire what is truly important in the short term while saving for long-term goals. To live below your means, gain an understanding of how much it costs you to live.

  12. While I realize that there are people around me who are really bad at financial planning, I find your post very educational and informative. Thanks for the ideas and I should share with my friends ~ Knycx journeying

  13. Creating multiple incomes, saving, and cost cutting are so important for living below your means.

  14. I feel you. It is hard to say ‘no’ to things you want and save. especially as the older we get the more we see life ending, you can not take your money with you

  15. Great post. I think the not relying on credit cards is the most impactful one to me. You only spend the money you have.

  16. Olena

    I spend too much and I really want to save more. I really appreciate all these tips. It is so tempting to spend everything you make but that is not sustainable. Thank you for helping spread financial literacy, so many of us (myself included) need to be better.

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