Is it possible to cut your expenses, increase savings, and still live comfortably? Living below your means. What even does that mean? We’ll get to that in a moment, but first, a story.
It’s a story I’ve told a lot, both in real life as well as here on Mostly Mindful. It’s a good story though, one that bears repeating.
When I got my first job, my Nana —who lived like a queen on her meager government pension— sat me down and offered me some financial advice.
She told me to divide my take-home pay into three. A third was to be allocated to savings and a third to living expenses. The remaining third, she said, was for spending.
The message was clear: live within your means.
I smiled politely and promptly disregarded everything she told me. I went into overdraft on my brand new cheque account and spent every available cent on my shiny new credit card.
Imagine sleeping better when you don’t have financial worries keeping you up at night. Or saving at a faster rate. You could even consider changing careers.
There’s something to be said for financial freedom, that’s for sure.
Knowing that when you get paid the money is yours to do with as you please and you don’t have anyone threatening to confiscate your new car in lieu of the outstanding debt. Living a debt-free lifestyle has numerous benefits.
Wherever you are on your own financial journey, figuring out how to stick to a budget and avoid overspending is an important first step.
Obviously, the earlier you start, the better off you’ll be. I’ll tell you how we moved from perpetual money stress to a life of debt-free peace. You’ll see it’s a journey you can start today.
What Is Living Below Your Means
In essence, it’s spending less than you earn – simple as that.
It’s not depriving yourself of the good stuff or living like a hermit. It’s more about smart spending and saving decisions. It’s about choosing the smaller car instead of a fancy one, packing homemade lunch instead of buying takeout from around the corner every day.
Most of all, it’s about acknowledging that your financial well-being is way more important and satisfying than the fleeting thrill of a shopping spree. Don’t worry, it’s not about sucking the fun out of life, it’s about making sure the life you’re living is sustainable for your pocket. You could think of it as a game 😉
Reasons You Need to Know About Living Below Your Means
Living a debt-free lifestyle has numerous benefits. You sleep better when you don’t have financial worries keeping you up at night. You can save at a faster rate. Plus, it makes changing careers more doable.
When you get paid you know the money is yours to do with as you please. You don’t have anyone threatening to confiscate your new car in lieu of the outstanding debt.
When you save up to buy something instead of going into debt, you also avoid the often astronomical interest fees that lending institutions charge for the pleasure of spending money that belongs to them.
In an ever-fluctuating economy, understanding how to live below your means can become your key to financial freedom. We cover the key points we learned for curbing our spending to get ourselves from drowning in debt to 100% debt-free. Budgeting, frugality, curbing spending and continued learning.
These action steps are practical, gradual, and rooted in real-life experiences, which means anyone, regardless of their current financial state can put them in place. It’s not about changing your life overnight; it’s about learning and practicing the skills to gain control of your financial health.
The 4 Actions Steps to Stop Living Beyond Your Means
1. How to Live on a Budget (And Stop Overspending)
When you pretend nothing is wrong (Sporty and I used this approach for ages!), ripping off the band-aid can be terrifying. You literally have no idea what state your finances are in.
On the flip side, it’s also a huge relief once you finally know the state of things. It might be worse than you anticipated, but it might not be. Either way, knowing is better than being in the dark.
If you have the means, hiring a financial advisor to help you is great.
This is the route Sporty and I took and to this day we credit Ian the bean counter for helping us achieve our financial goals. That said, you may not be able to afford to hire an expert to teach you how to save money instead of blowing it on everything except your overdue credit card bill.
That’s fine. It’s 2023 and everything you need to know can be found online. The trick, of course, is separating the wheat from the chaff. Or, as can sometimes be the case, discerning the charlatans from the real deal.
When it comes to budgeting and finance management, I always recommend Dave Ramsay. He’s so well-known you can type ‘dave finance guy’ into Google and he’ll be at the top of the page.
Dave has a bunch of tools and resources on his website (paid and free). Along with a guide to budgeting, he has a budget app, an investment calculator, and more. There’s also a 3-minute assessment that will help you figure out where you need to start.
Tracking your spending with a budget calculator makes living on a budget much easier. We humans have a tendency to over- and underestimate in the wrong areas. For example, we’ll think we have more money in the bank than we do.
Or, we’ll assume we haven’t spent nearly as much on takeout lunches as we actually have.
2. Keep Your Spending in Check With These Frugal Living Tips
Frugal living often gets a bad rap. People assume it means you have to be cheap, as opposed to live cheaply. There’s a difference.
Being frugal means you’re smart about your money. You don’t buy things you don’t need or can’t afford. When you’re cheap, you refuse to spend money on anything, even when you really need it.
Frugality is something that makes good money sense. Watch the video above for tips on ways to be frugal without being cheap. Josh has some great advice for saving money.
One of our favorite frugal activities is taking advantage of loyalty schemes. You can earn money to spend in-store simply by swiping a card (or scanning an app).
I mean, why wouldn’t you do that?
We’ve made a huge amount of money over the years by taking advantage of customer loyalty schemes. Some pay quite a bit, others not so much. It doesn’t really matter since it costs us nothing.
3. The Diderot Effect: How One Purchase Leads to Another
Have you heard of the Diderot Effect? Essentially, it’s something we humans do without even realizing it. Often, buying something new, say a pair of shoes, leads us to purchase a second item. A belt, for example.
If you’re lucky, that’s where it stops. However, more often than not, it spirals into a shopping fiasco. Before you know it, you have a whole new wardrobe. One you definitely didn’t need.
Reading the explanation, you’d be forgiven for thinking this is a new phenomenon. Nope. The famous French philosopher Denis Diderot first noticed the tendency to make reactive purchases in 1765.
Sorry, there’s no blaming Google’s advertising algorithms for this one. You’ll need to ask someone who studies human behavior if you want to understand why we’re inclined to head down this buying rabbit hole.
It might prove interesting, but for the sake of your finances, a better question to ask is: How do I overcome the consumption tendency?
Watch, read, and learn. Mastering this tendency will ensure you keep your money where it belongs: in your bank account.
4. Finance and Money Books Worth Reading (More Than Once)
While being in a financial pickle can be anywhere from not fun to downright unpleasant, the good news is that you’re not the first person to find yourself in this position.
Countless people around the globe have found themselves in the Debt Hall of Shame. This has prompted a huge range of books on the topic. Because, clearly we need someone to teach us how to manage our money better.
I’ve listed a handful of finance and money books that we’ve either read or had recommended to us. Go through them and see if any grab you. We all take on information in different ways, so it’s important to find an author you resonate with.
- Your Money or Your Life by Vicki Robin
First published in 1992, Your Money or Your Life is one of the books you’ll find featured anytime someone sees fit to compile a financial self-help listicle (like this one).
Touted as one of the most influential books ever written on personal finance, the book provides a 9-step plan to transform your relationship with money and achieve financial independence.
- Secrets of the Millionaire Mind by T. Harv Eker
Secrets of the Millionaire Mind is one of the first books Sporty and I read when we embarked on our mission to improve our finances. An easy, almost conversational read, the book starts off by explaining how your money blueprint works.
From there, T. Harv elaborates on the seventeen ‘wealth files’ that separate the average Joes from the well-off. He explains how rich people think and act differently from poor and middle-class folks and provides action steps to follow in their footsteps.
- The Choose Yourself Guide to Wealth by James Altucher
The sequel to Choose Yourself!, The Choose Yourself Guide to Wealth is James’ attempt to shake us free from old thinking. He doesn’t pull his punches, so if you prefer kid gloves this book might not be for you.
Personally, I love his approach to life. James tells it like it is, but not to be argumentative. He just doesn’t see the point of avoiding an issue just because it’s something we’d rather not talk about.
Keenly observant of the world around him, James dives deep on matters the rest of us either prefer to avoid or don’t notice in the first place. I highly recommend his books and if you have the time, listen to this conversation he had with Rich Roll a little while ago.
- How to Retire Early by Robert Charlton
A book on retiring early is best written by someone who has actually retired early. In December 2006, at the age of 43, Robert Charlton and his wife retired from their jobs to travel the world and live life more fully. You can read about their adventures on their blog Where We Be.
If you’re looking for overnight success, this book isn’t for you. Instead, Robert provides a detailed look at the roadmap he and his wife followed to get them from full-time work to financial independence in less than 15 years.
Sporty and I learned a lot about investing and figuring out how much money we’d need to save in order to live fairly comfortably when we stopped working. We’re still a way off, but now at least we have a clear idea of what it will take to get where we want to be.
- Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler
Nudge takes us up close and personal with our often poor decision-making skills. It teaches us to look more closely at why we make the decisions we make and more importantly, how to make better ones in the future.
Unless we get a handle on why we do the things we do (like spending money we don’t have on things we don’t need), all the money management know-how in the world won’t save us from our desire for more.
Key Considerations For Successfully Living Below Your Means
Take the time to fully understand the state of your finances. Rip the bandaid off once and for all. You’ll feel better for it, I swear.
Remind yourself that your financial future is on the line.
Take Dave Ramsay’s 3-minute assessment. Perform an in-depth financial audit so that you know exactly what you’re dealing with.
It may sound intimidating, but all it essentially means is that you write down how much money you have coming into your bank account, how much is leaving it, and how much debt you have.
Create a budget that works for you and stick to it no matter what. If your friends want you to come out for pizza and your budget doesn’t allow for the expense, decline the invitation.
Taking it to the Next Level: How to Move Beyond Just Living Below Your Means
Living below your means is an important first step towards financial stability and freedom. But what comes next? Here are a few suggestions for moving beyond just living below your means:
- Invest and Grow Your Wealth: Once you have mastered the art of spending less than you earn and have started saving, consider taking your savings and putting them to work for you.
Explore different investment options that align with your financial goals and risk tolerance can help grow your wealth over time and provide additional sources of income, creating a stronger financial foundation.
- Focus on Increasing Your Income: While living below your means involves keeping expenses in check, another way to speed up your financial progress is to find ways to earn extra money.
Look for opportunities to boost your earning potential, such as acquiring new skills, starting a side hustle, or exploring career advancement. Increasing your income can give you more financial flexibility and accelerate your journey towards financial freedom.
- Continued Learning and Adaptation: The world of personal finance is constantly changing, and it’s important to stay informed and adapt to new circumstances. Keep learning about effective budgeting, saving strategies, and investment opportunities.
Stay updated on financial news and trends. By continuously expanding your knowledge and adapting your approach, you can stay ahead of the curve and make the most of your financial resources.
Remember, moving beyond just living below your means requires ongoing effort and dedication.
Other Options for Living Below Your Means
While living below your means is a powerful financial strategy, it may not be the only approach that suits everyone’s circumstances and goals. Here are a few alternatives:
- Financial Independence Retire Early (FIRE): The FIRE movement focuses on aggressively saving and investing a large portion of your income to achieve early retirement and financial independence.
This approach often involves adopting an extremely frugal lifestyle, minimizing expenses, and maximizing savings to expedite the journey toward financial independence.
- Mindful Spending: Mindful spending emphasizes conscious consumption and aligning your purchases with your values and priorities. Instead of solely focusing on cutting back, this approach encourages you to invest in experiences and items that truly bring you joy and enhance your well-being.
It involves thoughtful consideration of your expenditures and making sure that each purchase aligns with your personal values and lifestyle goals. While this method might not strictly reduce your spending, it encourages you to spend your money in a way that brings you the most fulfillment and satisfaction.
Remember, financial strategies are not one-size-fits-all. What works best for you will depend on your unique financial situation, lifestyle, and long-term goals. You may find that a combination of these strategies or a completely different approach works best for you. Regardless of the path you choose, the key is to stay focused, disciplined, and committed to your financial well-being.
Let’s Wrap This Up
I’m not under any illusion that this is an easy path to follow. Especially if you’re already in debt. The world is a vastly different place than it was in my Nana’s days. Rents are higher, food costs more and salaries haven’t increased proportionally.
Telling you to save a third of your income may seem laughable. (You may even be rolling your eyes at the screen.) The point is, however difficult or challenging it may seem to keep to your budget constraints, you must at least try.
Throwing your hands in the air or worse, applying for yet another credit card, will only sink you deeper into that hole. The sooner you face facts and start making plans to fix your finances, the sooner you’ll be on the road to financial freedom.
Make a commitment to yourself that starting now, you’ll live within your means. No more spending money on stuff you don’t need. No more eating out and picking up coffee at Starbucks.
You can do this. Trust me, if Sporty and I could fix our mess, you can fix yours too!
Knowing is not enough; we must apply. Willing is not enough; we must do. —Johann Wolfgang von Goethe