Have you ever heard the expression "live below your means," and wondered what it meant? According to the Huffington Post, living below your means is when "you live a lifestyle below your net income." Basically, if you focus on living a more frugal lifestyle than the one you could currently afford, you will be setting yourself up for a brighter financial future.
Personal Finance Expert and Owner of DollarSprout.com, Jeff Proctor, explained that it's important to "start planning for the future. A lot of people, especially millennials, justify overspending because they’re living in the now and not thinking much about 1, 5, or 20 years down the road. Decide what you want to accomplish in life and what kind of future you’d like to build. Envisioning yourself in your ideal future will motivate you to work harder to achieve it."
Although living below your means is an obvious recipe for financial success, many people struggle with this idea because they don't know where to start or have a difficult time letting go of their current financial habits.
Proctor advised that you start by asking questions. He said "a simple way to start living below your means is to question every purchase. I recommend asking yourself three questions before buying anything: 1. Do I need it? 2. Will I use it? 3. Can I get it for less? Asking yourself these questions forces you to reflect on the purchase before making it. You’ll start to become more aware of your buying habits and more selective in your purchases."
Ellie Thompson, CEO of Money Therapy, explained that "to live below your means you need to focus on the big-ticket items in your life. Instead of focusing on your everyday spending, evaluate things like your car payment, mortgage, and insurance. Usually, if you are living above your means your fixed expenses are usually too high. Try using the 50/20/30 rule. This means 50% of your income goes to your fixed expenses, 20% goes to your savings goals, and 30% goes to guilt-free spending."
Thompson suggested that "the best way to start living below your means is to reduce your fixed expenses. If you are simply unable to do that, you need to evaluate your earning potential. Budgeting is like a diet, you know the only way to have more money is to spend less or earn more but you may look for ways to get around this. The truth of living below your means includes the other side of the equation which is you may need to earn more. Don't sell yourself short."
Even though some may see the idea of "living below your means" as a restriction of financial freedom, Proctor and Thompson say otherwise.
Proctor explained that "if you value freedom, then yes, living below your means is worth it. If you’re constantly spending as much as (or even more) than you make, you’re not able to save for the future and will eventually find yourself stuck in a less than ideal situation without the means to escape (e.g. a job you dislike). Living below your means is a key part of achieving financial independence."
Thompson said "living below your means is essential to save money. If you are always living above them you will be trapped in debt and unable to save for your family or yourself. Instead of viewing living below your means as a punishment, view it as a favor to your future self."
Living below your means doesn't have to be all about restricting yourself or avoiding any non-essential spending. It's simply a way to ensure that you are securing your financial future and proves that you are able to control your spending and saving habits. The sooner you start planning for the future and developing solid financial habits, the better. Begin with a self-diagnosis of your current credit standing, financial habits, and budget. From there, try adjusting your lifestyle so you can live below your means to reach your future financial goals.