Five Tips for Living Below your Means
You can save more and live on less now to build a brighter financial future
In my book “Money Rules, The Simple Path To Lifelong Security", I make a case for consistently spending less than you earn. It's Money Rule No. 10: Live below your means.
And no, I'm afraid that does not mean living on what you make. You don't want to tread water for the rest of your life, living paycheck to paycheck. What you want is to glide through the pool like Michael Phelps in a 100-meter relay. Becoming a champion saver, if you'll pardon the pun, means developing ways to consistently, month after month and year after year, live on less money than you bring in so you can save more for the future.
That may also mean finding other ways to earn more, whether that's getting up the gumption to ask for a raise or promotion, taking a side job, and/or going back to school for training in a field that pays more than your current career.
Here are some strategies for successfully living below your means to help realize your financial goals:
Track your spending, then create a budget
If you don't have a budget, now's the time to create a monthly spending plan so you can figure out exactly where your hard-earned cash is going every month. To do this, gather your most recent bank statements and credit card bills and dig in. Look at how much you have coming in and how much you have going out. Don't forget to count other income such as rental property or any other side hustle.
Once you see how much you have to work with, look for places to cut spending. If you're not currently tracking your spending, you can do it old school with pencil and paper, but there are also several apps that can help.
Live in a smaller house than you can afford
In other words, just because you are approved for a $500,000 mortgage doesn't mean you should spend that much on a house. The same goes for apartment rent. One rule of thumb is for your housing costs to be 35% (or less) of your monthly gross income. That 35% should include the cost of insurance and upkeep.
Those who spend a great deal more than 35% of their income on housing may want to consider refinancing if they own, moving to a more affordable location, or downsizing to a smaller home. Another benefit of living in less space is that utility bills and home maintenance costs decrease accordingly.
Keep your new-to-you car a few years longer.
Some people never buy a new car, instead of purchasing one that's one or two years old (and still under warranty) to save thousands off the original sticker price. And once they have a new-to-them vehicle, they drive it for a few years after it has been paid off, saving on car payments.
Only buy things on sale.
From groceries to electronics to new clothes, never pay full price for things if you can help it. That means when you are at the market, and you are in the mood for steak, but the pork chops are on sale, pick the pork—every time. You can also make shopping supermarket sales more of a game to see how much you can save weekly or monthly on your food bill by simply choosing sale items over those that aren't discounted.
Save your raises
When you receive a raise or cost of living increase, immediately move that additional money into a savings or retirement account. Make it easy on yourself and set up a weekly or monthly electronic transfer for a few days after you are paid. If you can't move the entire amount of the raise each month, consider taking a portion of the raise and stashing it into savings. Even small amounts add up over time.
Jean Chatzky/SavvyMoney – Reporting by Casandra Andrews