Living below your means doesn’t necessarily mean living cheaply and doing everything you can to save money. Instead, to live below your means, you must spend less money compared to what you earn.
This simple adjustment can help you generate wealth slowly but surely. As you start saving, more money will accumulate, and you can use it to achieve your financial goals.
Later, we will show you how.
But first, let’s go through the tips for living below your means.
Track Your Spendings
The best way to start living below your means is to figure out your spending habits. It is easy to spend money without even realizing where you are spending it.
Pinning down your monthly expenses will help you make necessary adjustments in your life that can reduce the amount of money you spend. Simply by tracking, you will be able to delegate more money to certain areas of your life.
How it works in real life:
For example, you may eat out every few days and discover that you are giving thousands of dollars to restaurants monthly. You can simply adjust this by eating at home. Instead of going to a restaurant, do the weekly or monthly grocery shopping and prepare food at home.
This doesn’t mean that you should stop going to restaurants, but instead of going five to ten times a month, you can go once or twice, and you will see your savings account grow.
Spend Money on Necessary Things Only
As you start tracking your purchases, you will discover some unexpected expenses you can cut down on. Before you even start creating your budget, you will notice the problematic areas keeping you from financial success.
One of the biggest liabilities we own is a car. Did you know that new cars lose up to 20% of their value within a year? Instead of buying a brand-new car, you can use that money to buy a used car.
You can always go one step further by living below your means. Not having a car today is unthinkable for most Americans, and the truth is that they make our lives easier. But instead of driving around everywhere, use public transportation for some trips to the city.
Save Money on Clothes
You will spend money on food, bills, and other necessary things, but do you need to get new clothes every month? Having new clothes and staying current with fashion are desirable but not required. We are so caught up in the consumer spending mindset that we don’t realize how much money we spend on clothes.
Once you put this on paper, you can make a data-based decision on whether you have to cut down on your spending.
Credit Card and Credit Card Debt
Credit cards can be a helpful way to make large purchases. However, if you use them irresponsibly, you can create credit card debt that is not easy to pay off. With credit cards, you are spending cash that isn’t yours, which isn’t something to do if you want to live below your means.
Damaging Your Credit Score
Let’s say you have some credit card debt. Missed or late payments can result in damaging your credit score, which could have long-term consequences.
To avoid these issues, it is best to always pay off the balance on time and in full each month, or at least make payments that are larger than the minimum.
Otherwise, you will receive an over-the-top credit card bill you will be unable to pay.
In the end, credit cards should only be used for necessary purchases and with care to avoid getting into too much debt. If you can, don’t use them at all.
Use your debit card instead. Allocate the funds to utility costs and other essential living expenses.
Have an Emergency Fund
An emergency savings fund is something every individual or family must have. If you want to live below your means, take a certain percentage of each salary and put it in your emergency fund.
This fund is used for unexpected expenses and life emergencies. Ideally, you will never have to use money from this fund, but American life has gone through drastic changes, and every family needs emergency cash.
The goal should be to have enough cash to cover you for at least three months or to patch up some expenses that come out of the blue.
Don’t use the fund lightly
Try setting aside small amounts first. Saving money isn’t something that happens overnight. Also, you should make it clear what the emergency fund is for—it is not to be used for shopping, paying for lunch, or other day-to-day expenses.
Instead, use it for emergencies such as injuries, major breakdowns, household renovation, etc.
Use the 125% Rule For Your House
Buying a home is a huge step in your life, but homeowners know that there are many more expenses than just monthly mortgage payments. Home maintenance will eat up a large portion of your household budget, which is why this is something you need to consider before even making a payment.
Remember that you want to live below your means. With some basic financial planning and the 125% rule, you can figure out if the home you want to buy is worth it and, more importantly, if you can afford it.
What is the 125% Rule?
When buying a home, look at the projected mortgage payment and multiply it by 1.25 to get an idea of what you can expect. If you can afford to pay for your home and its maintenance and still live below your means, then go for it.
You can apply this principle to other purchases and big-ticket items as well. This will help you figure out your budget and plan for a stable financial future, even if you are making big investments and spending a lot of money.
You can apply this to other big purchases and estimate expenses with maintenance included. The number you get isn’t going to be accurate, but it is much closer to reality.
Taking advantage of this simple rule can reduce your spending and allow you to utilize your income in the best way possible.
Downsize Your Home
Speaking of home maintenance, your home eats up a large portion of your overall income. There’s always something to buy, fix, or upgrade, and these expenses are inevitable.
Living below your means shouldn’t be difficult if you have a home of the right size. As soon as their monthly income increases, a lot of people rush to buy homes that are way below their level.
In other words, they don’t have enough money to maintain it, which can jeopardize your financial situation.
Finding a new home is hard
Therefore, consider your living needs and expenses and find a home you can afford. This will give you more room to become creative with your money instead of living paycheck to paycheck or looking for a second job to sustain your lifestyle.
Not to mention that housing prices are sky-high, whereas wages only went up by a tiny percentage. Moving to a smaller home can be a smart choice — your regular bills will be lower, and so will your overall monthly spending.
Spending Money on Subscriptions and Memberships
Spotify, Deezer, Netflix, Amazon, HBO, your local gym, library, etc. These are all the memberships and subscriptions we use to watch the shows we love, listen to music, and stay healthy.
These aren’t expensive; each monthly payment is only a couple of dollars. Often, we just connect our bank account, and the money is withdrawn without us taking any action.
While this is convenient, these expenses can pile up. Each month, you pay for several subscriptions and spend tens of dollars. Over the years, the amount of money that accumulates is significant. This is all the extra money you can use for other things.
Living below your means does not preclude you from having fun. A gym membership is valuable because you work on your well-being, but do you need three different platforms for TV shows and movies? Do you need three different platforms for streaming music?
Instead of having multiple accounts, cancel all the subscriptions you don’t need. Spending money this way is not the best use of your finances.
Alternatives to Cancellations
If you love watching all the shows and listening to music on several platforms, consider joining forces with your friends and family — create just one account and divide the cost between a couple of you.
This is a great way to keep all your sources of entertainment but reduce unnecessary expenses.
Create A Financial Plan and Set Financial Goals
To achieve financial security, you need to have a plan and stick to it. Creating an overall yearly plan will help you on your journey to financial freedom. Setting short-term goals within that plan will help you go one step at a time.
You can set your priorities and opt for one of the different plans based on your situation and what you want to achieve:
- A debt payoff plan
- Emergency savings
- Real estate plan
Once you have a clear plan and specific goals, you can easily achieve them. Whether it is as simple as shopping at second-hand stores to save up or increasing your net worth and starting a retirement savings fund, breaking the journey down into pieces will be beneficial.
Change Your Money Mindset
At Wealth Nation, we talk a lot about mindset and how important it is to live below your means, achieve financial freedom, and own your own lifestyle.
We’ve done a whole video about it:
If you are at the beginning of your financial independence journey and want to make a few steps in the right direction, tracking your expenses and living below your means is an excellent way to start.
We built the community for you
Later on, by joining our community of like-minded individuals, you can learn how to take home pay, invest it, and create another source of income for you and your family. All of that with the support of people like you!
It is not easy to start living below your means, but with the right mindset, everything is possible. You will have to be disciplined, but at the same time, you will watch your status improve, which will help you stay motivated.
Living Below Your Means is Temporary
You are living below your means to add to your savings account and later use that money to improve your personal finances further. The goal isn’t to save money just so you can save it because, when not used, money loses value.
Although you will have to cut your monthly expenses, this won’t last forever. You will start living much better and eventually come to the point when you don’t have to worry about cash or paying bills.
Save Money to Buy a Whole Life Insurance
Once you start living below your means, create a nice nest egg, and have a stable income, you will be able to put your money into motion. One of the ways to build generational wealth is through a whole life insurance policy.
Buying whole life insurance is the first step to financial freedom. The reason for it is because this type of insurance comes with the cash value component – what you will use to build your wealth. The policy will serve as collateral as you take loans from the insurance company and in case you don’t pay them off, the insurer will take the money out of your cash value.
Build Your Wealth Through 50/30/20 Rule
With 50/30/20 rule, all you have to do is divide the income after you pay taxes into three different categories:
- Fixed Expenses – 50% of your income
- Wants – 30% of your income
- Savings 20% of your income
This is the best way to delegate your money and make sure that you have enough for policy premiums and building up cash.
We’ve been using whole life insurance policies for several years. Thanks to it, we’ve managed to generate wealth for our clients and ourselves!
Whole life insurance provides some coverage for you and your family, but once you learn to use it actively, it becomes a powerful tool.
Start With Infinite Banking (IBC)
The cash flow you build up as you pay your premiums is the most important part of a whole life insurance plan. Paying premiums every month and overfunding your policy will lead to a high cash flow that you can use as collateral when you take a loan from an insurance company.
You should invest a big chunk of your loan. Once you pay back your loan and interest, the money left goes to your cash flow. Next time, you will be able to get a bigger loan and get a return on your investment.
The sooner your start, the better
It takes a while before you can start using your policy, but once the cash starts rolling in, you will eventually be able to afford a better car, real estate, and other assets that will generate more income for you. However, saving money only will not be enough and you need to start investing as well.
In a nutshell, this is infinite banking. Essentially, you become your own bank and no longer depend on the system!
Join us to build wealth together!
It is one thing to live below your means; it is another to set accurate financial goals based on a whole life insurance policy and infinite banking.
Although it sounds simple on paper, applying infinite banking in real life requires discipline and knowledge, but with proper guidance, everyone can do it.
Hopefully, you now know how to live below your means. More importantly, you understand the mindset and reasoning behind it. It isn’t a punishment but rather a necessary step you have to take toward financial freedom.
Living below your means will help you get back on track. After that, you can buy a specially designed whole life insurance policy to create generational wealth and own your own lifestyle!