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The Complete Guide to Living Below Your Means

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How to Live Below Your Means: The Complete Guide

If you desire to have real financial freedom, reduce the stress that comes with budgeting, and take control of your financial situation, the best plan is to learn to live below your means.

Living below your means is a necessary skillset for anyone who does not want to be controlled by their money and saddled with unmanageable debt.

If you are already in debt, living below your means will enable you to eliminate it more quickly and easily.

You will also be able to start saving your money for the future, whether that be for retirement or just to make purchases that are meaningful to you.

Living below your means is a necessary skillset for anyone who does not want to be controlled by their money and saddled with unmanageable debt.

There are numerous ways to learn how to live below your means, but most of them share a set of core guidelines.

This article will explore the principles you will need to apply to your daily life to take charge of your money and work towards financial independence.

Keep in mind that it will likely be difficult for you to implement some of these principles, especially all at once. Be patient with yourself as you get into the habit of living below your means.

Additionally, do not be discouraged by the initial difficulties you might have; as time goes on and you practice these principles, you will find it becomes a simple matter of habit to spend your money wisely.

This will be even truer once you begin to see the rewards of your frugality. In fact, as you see the increasing benefits of practicing financial prudence begin to snowball, your satisfaction with your finances will only increase.

How Do We Define Living Below Your Means?

The phrase might seem obvious to many people, but there are misconceptions about what it means to live below your means.

Living below your means does not mean that you never spend money on things you enjoy or have a good time. It also does not mean that you have to live as if you were poor or act miserly when it comes to your money.


Read: The Frugal Life: How to Cut Back on Daily Expenses

Dispelling myths like this is important, because many people believe that living below their means will make them miserable. But you certainly do not have to be unhappy living below your means. In fact, it is actually a strategy to maximize your happiness and financial well-being over time.

Put simply, living below your means is nothing more than not outspending what you earn. In essence, that is really all there is to it. Obviously, this is something that is simpler on paper than it is in practice.

Spending less than what you make is a practice that involves discipline and dedication, and it is not something that can be learned to perfection overnight.

That said, if you begin to practice, you will quickly find that living below your means is worth the initial struggle.

Put simply, living below your means is nothing more than not outspending what you earn.

Getting Rid of the Stress That Comes with Money

One of the immediate benefits of living below your means is eliminating the stress that comes with unplanned finances.

It may seem easier on the surface to fly by the seat of your pants, but leaving your finances un-managed is actually far more stressful than keeping a tight rein on them.

Money Stress

Knowing how much money you need to live each month, how much you will need to spend on bills, and how much you can afford to save and spend on special occasions gets rid of so many of the worries you are probably accustomed to.

Think about feeling no stress at all when a bill comes in the mail because you already planned ahead for it. Or think about knowing when you can plan to go out to dinner or for a night out with friends without worrying about how it will affect your bank account.

On top of all that, living below your means will ensure that you will have fewer unexpected expenses. Even when you do have something unforeseen crop up, you will be far more prepared because you have set money aside for just such occasions.

Debt and Living Below Your Means

With all the options for credit and loans available, it can be quite easy and often tempting to spend more than you earn. However, as a rule, debt is not a good thing to have.

There are times when it may be unavoidable, and living below your means does not mean avoiding those times or pretending that they do not exist. Rather, it entails not taking on any debt that is not strictly necessary.

For example, a mortgage is a type of necessary debt for many people.

Keeping in mind that debt is not merely about the amount you owe when you take out a loan but the amount that you will come to owe over time because of interest, it is obviously a subject to approach with caution.

Stop Using Credit Cards

Read: How to Stop Using Credit Cards: Complete Guide

If you are already having trouble paying your bills, taking on more debt even to lift yourself out of financial trouble is about the worst thing you can do. In the end, accruing more debt is only a way to further sink your finances, add to your monthly expenses, and make it more difficult to get ahead in the future.

Living below your means, on the other hand, allows you to avoid further debt and begin to eliminate the debt you may already have.

Depending on how much you can avoid spending each month, you will even begin to save money right away. If you cannot save money at first, it will probably not be long before you are able to do so, especially as you continue paying off your debts.

Building Your Savings by Spending Less Than You Earn

One of the best benefits of living below your means is that it frees you up to begin saving your money for more important things than impulse buys.

Think of all the things you have ever wanted but never been able to afford: that next vacation, a new gift for someone around the holidays, a new car, or even a dream home you have been eying up for a while. None of these things are possible without money and usually large sums of it.

Living below your means is the key to affording the things that are really valuable to you, as opposed to whatever is merely in front of you. Take a moment to think about all the things you could one day afford if you began spending your money more wisely today.

Retirement is another major cost that you need to consider sooner rather than later. After all, the longer you wait, the harder it will be to save and the less you will realistically be able to put away. But retirement is a financial necessity that all of us are likely to have to face at some point, so it only makes sense to begin preparing now.

By living below your means, you will be able to control your money both now and in the future, after you have stopped working.

Read: 10 Ways to Save Money as a Family: Complete Guide

What You Can Do to Start Living Below Your Means

The steps to take to control your finances and live below your means are relatively straightforward. That does not mean that you will not find them to be difficult at first. As with any life adjustment, changes to your financial practices take time to become a habit.

Once you have firmly put these practices into place, however, you will find that it becomes easier over time as the work it takes to manage your finances decreases and the rewards for managing them increase.

Understand Your Monthly Income

Firstly, you will need to have an in-depth understanding of your monthly income. This will be pretty simple if you earn a regular paycheque of about the same size, but you can do this even if your paycheques vary (for example, if your work schedule changes frequently or you are self-employed).

In these cases, try to find an average of what you make on a monthly basis and use that as a starting point. Staying as far below this as comfortably possible is the ideal, since that will maximise your financial freedom.

It is perfectly acceptable and even expected for this to take some experimentation. If you find it easier, you can also look at what you need on average each month in order to make ends meet and start from there.

Use a Personal Finance App

There are a lot of apps and tools out there which will help you track your monthly spending, outgoings and will help you to create a budget.

The one we recommend is Personal Capital, It’s a free app with a lot of features such as wealth tracking, budgeting, net worth calculator and so on. It will help you get a clearer picture of your finances.

Read our full review here.

Personal Capital Review
Personal Capital Review: Finance Software for Wealth Management

Visit Personal Capital

Control Spending Habits

Once you know roughly how much you make each month, you will need to take control of your spending habits by examining them closely.

  • Where and when do you spend the most money each month?
  • How much of it is truly necessary?
  • What can you comfortably cut from your spending?

These are important questions, and the answers will be different for everyone. Look through your bank statements over previous months and see where your money has gone.

Track the Small Purchases

You may find that you have spent a lot of money in small sums over time without even realising it, such as buying lunches or daily coffee.

These small purchases can quickly add up. Categorise your spending habits into bills, mortgage, treats like eating out or seeing a film, etc.

The longer a period you can analyse, the better your conclusions will be, since you will be able to eliminate exceptions that crop up in everyone’s budget now and again.

Eliminating Expenses

After you have gained an understanding of your monthly income and examined how you have spent it in the past, your next step will be seeing what expenses you can realistically eliminate.

Assuming this has not previously been your practice, you are quite likely to find that there are many things you can cut out of your budget partially or even entirely.

Anything that is totally unnecessary or might be categorized as an inessential luxury is what you should focus on removing.

For example, if you have a television streaming service that you hardly ever use, then there is no reason you need to keep it.

Another common expense that people do not make worthwhile are investments like gym memberships.

This process may be painful, but avoiding unnecessary expenses is the first step and the best way to make living below your means possible.

Next, make sure that you are not spending more money on essential items than is actually necessary.

  • Can you buy your groceries at a cheaper store or buy less expensive brands?
  • Do you need as much cell phone data as you pay for each month?

Leave no part of your budget unexamined. Even if you only save a small amount on each item every month, those totals will add up quickly.

You will be pleasantly surprised just how much money you will start to have left over.

How to Save Money on Low Income

Read: How to Save Money on Low Income: Complete Guide

Using Cashback Sites

After you have eliminated as many expenses as you can, you need to get smarter about the purchases that you do make. One way that is successful for many people is to use Cashback websites.

These are sites that will reward you for purchases at thousands of different retailers online and offline and will send you a percentage of your purchase back.

They work by having affiliate agreements with different retailers, when you make a purchase via them, the Cashback site will earn a reward and will then give this back to you.

We have recently reviewed the top two sites here in the UK, Quidco and TopCashBack so read our reviews of those and signup to both to start earning cashback.

Increase Your Income

Once you are are sure you have got your spending under control by eliminating any unnecessary expenses you should now be earning more than you are spending each month.

This is your number one priority as otherwise you will be building debt, which costs more and will end up in a vicious circle.

Now you can direct your focus away from saving money to making more money. Now, depending on your job and family commitments you should have some time you can spend each week dedicated to increasing your income.

If you are employed in a job, you could start off by asking for a raise, this is probably the simplest method to raising your income.

It might seem daunting to just walk into your bosses office and flat-out ask, but often times this will work – especially if you are a valued member of staff.

You should clearly explain your reasons for asking and back up your request with some data as to why you deserve one.

Another way to increase your income is to start a “side-gig” which could be all manner of things. We recently put together a guide for College Students looking for online work, the methods we have listed will apply to anyone though so take a look at that.

Online Jobs for College Students

Read: Best Online Jobs for Students Guide

If you have skills in your job that would be used for freelance work, that’s a great place to start. For example, if you are a designer, you could start taking on clients outside your job. If you have writing skills, you could join a marketplace such as Upwork and start looking for clients there.

Other things you could do to add some more money, is unclutter your home and sell your items on eBay or at garage / car boot sales. Facebook marketplace is another place you could sell unwanted items.

You should sit down and brainstorm ideas for increasing your income, I’m sure once you start you will come up with some solid ideas you can start putting into practice and develop the right money-making mindset.

Of course, not everything will work first time, but eventually you will find something that “clicks” and then you can focus your energies on that and start scaling it up.

We delve in deep into different methods for earning extra income in the following posts:

What Should You Expect Next?

Having completed these steps, you will have begun the journey of living below your means. The key from here on out is to make sure you stick to the budget you have set up.

Be careful to track your future spending habits and continue to examine ways to save your money by cutting costs and unnecessary expenses.

If you do not want to go through the hassle of writing everything down, there are a variety of apps and other services available to help you track your budget.

Make sure to look over your finances regularly, so that you know how well you are sticking to your plan and where you can improve.

Never let yourself become discouraged if you make mistakes or give into a moment’s temptation to spend unwisely. Like all habits, this one will take time to build and strengthen.

The most important things are that you do not give up on budgeting and you take even small steps to gradually improve your finances.

With discipline and organization, there are many ways to make living below your means a possibility without sacrificing the things that make you happy.


Oliver Dale is Editor-in-Chief of MoneyCheck and founder of Kooc Media Ltd, A UK-Based Online Publishing company. A Technology Entrepreneur with over 15 years of professional experience in Investing and UK Business.His writing has been quoted by Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch & More.He built Money Check to bring the highest level of education about personal finance to the general public with clear and unbiased