How to Live Below Your Means: Benefits and Tips for Success

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Are you struggling with trying to figure out how you can live below your means? 

Maybe you or your partner made some less than optimal decisions with your money and now you are fighting to keep yourselves afloat.  

Or maybe you have been living paycheck to paycheck for as long as you can remember and are tired of feeling stressed about your financial situation.  

And now you are committed to making some lifestyle changes but you don’t know where to begin. 

You are totally not alone!  

Tons of people are living paycheck to paycheck and have absolutely no wiggle room in their budgets to handle any sudden expenses that could arise.  

According to CNBC, 63% of Americans are now living paycheck to paycheck since the COVID-19 pandemic.  Many people are going further into debt just to pay their monthly expenses.  

Learning how to cut costs and make financial decisions to help you live below your means takes dedication, time, and planning.  This is especially true if you have been living above your means for a while.

Even if you have been spending more than you make for a long time, I am here to tell you it is possible to turn your financial situation around. 

You just need to adapt the way you are using your money so that you can put your money to work for you to reach your financial goals.  

It’s all about making changes.  That is the key.  And you should try to make changes right away so you can start living below your means as soon as possible.  

So keep on reading to learn more about living below your means.

11 Genius Tips to Live Below Your Means

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What does it mean to live below your means?

Living below your means simply means spending less than you make.  If you are living below your means, you will have money left over after paying all of your monthly bills.

The money you have left over could be used for things like paying down debt, saving money in an emergency fund, investing to build wealth, and so many other important financial things!  

This leftover money will help you to work toward financial wellness and ultimately financial independence.  That is why living below your means is so important for your future.  

Here is a quick example of what living below your means could look like:

Total Monthly Income (after taxes and paycheck deductions):  $3,250

Total Monthly Expenses:  $2,800

Difference:  $450

This person would have $450 to use every month to help improve his or her overall financial situation.  

Sounds awesome, right? 

Of course it does.  And there are tons of other benefits of living below your means!

Why should you live below your means?

Let’s talk about all of the key benefits of living below your means.  

Reach your financial goals more quickly

If you do not have money left over at the end of each month, it will be very difficult to reach any financial goals you may have. 

So let’s just say you want to pay off some credit card debt so you can start saving for a down payment on a home.  If you don’t have the money to pay more than the minimum on your credit card, it will take you much longer to pay that card off.  

This will prolong meeting the goal of saving for a down payment for a home.

Feel less financial related stress

Not having any extra money leftover at the end of the month can be very stressful.  And stress can cause a multitude of medical problems!  

Living below your means can help you avoid feeling stress because of money problems.  This is because you can put that extra money to use in a way that will help you achieve financial wellness, which leads me to my next point!

Reach financial wellness, and eventually, financial independence quicker

Financial wellness is when you have your money situation under control to the point where you are paying your bills on time, have money in an emergency fund, and are saving for your future.  

If you have achieved financial wellness, you don’t feel stressed about money, money isn’t causing disruptions with your relationships, and you aren’t losing sleep at night because of money problems.  

If you would like to read more about achieving financial wellness, you can check out this post I wrote on the topic.  

Financial independence is when you no longer need to rely on working to bring in an income to pay your expenses.  You have enough income from your investments or other passive forms of income to pay your living expenses forever.  

Living below your means is a stepping stone to reaching financial wellness and financial independence. 

Live below Your Means to improve relationships (couple sitting on rock looking at lake)

Less arguments and fighting with loved ones 

Did you know money is one of the top 5 reasons people get divorced?  Money related stress is real and it wreaks havoc on relationships. 

Living below your means will help you feel less stressed, which will help to avoid arguments and full blown fights with loved ones about money.  

More flexibility and choices when making big life decisions

Living below your means is a great way to give yourself more choices and flexibility when it comes to making big life decisions.  

You are basically giving yourself more freedom to make the choices you want in life. 

Here are some examples of the kinds of choices you could potentially have more freedom to make:

  • making a career or job change
  • starting a family and staying home with the baby for a period of time
  • decreasing hours at work
  • funding and starting a side hustle
  • taking a leave of absence from work to care for sick loved ones
  • helping other family members financially when they are struggling

These kinds of things may not be possible for you if you are not living below your means.  

How to live below your means

How do you live below your means? 

If you are not currently living below your means, you will need to make some changes with the way you are using your money in order to have extra money left over at the end of every month.

Here are some tips to help you be successful with living below your means this year.

Get in the right mindset

If you are not mentally ready to make some real changes with how you are managing your money and your spending habits, it will be very difficult to find success with living below your means.

Any kind of change is difficult. If you have been managing your money a certain way for many years, changing your ways is going to take time and effort. There will bumps in the road that could throw you off course. You may feel like throwing in the towel and giving up.

Being in the right money mindset will help you to be patient with yourself during these bumps in your journey to living below your means. Instead of giving up, a positive mindset will help you to problem solve through any difficult situations that may arise so you can get yourself back on track.

If you would like some tips on how to get in the right money mindset to get motivated to start living below your means, check out my post on ways to develop and keep a positive money mindset.

Track spending

If you are spending every last dollar every month, you should start with tracking your spending.  I think it’s best to track your spending for at least a full month.  If you can track your spending for 2 full months, that is even better.

Once you track your spending, you will have a better picture of where your money is going.  And once you know where it is going, it will be easier for you to make changes with your spending habits.  

Create a budget

After you track your spending and figure out where you will be making changes with your spending, you will want to make sure you have a realistic budget set up. 

If you have a budget set up, you will know exactly how much money you should have left over after paying all of your monthly expenses (including fixed, variable, and discretionary).  

If you need help creating a budget, you can download my free Budget Binder.  It includes a financial goal writing worksheet, directions for creating a budget, a budget worksheet to help you figure out all of your expenses, a huge list of budget categories, and a budget tracker.  

If you would like to read more on budgeting, you can check out my post Budgeting for Beginners in 6 Easy Steps.

Live below your means (woman holding a handful of change with the words "make change" written on paper

Live frugally

Once you have your budget set up, you can start to find even more ways to cut your expenses.  Frugal living is about being intentional with your spending habits.  It is about learning ways to spend less money on the things that don’t really matter to you so you have more freedom to live your life the way you want to live it.   

Converting your lifestyle to a more frugal lifestyle will definitely make it easier to live below your means.  But getting in a frugal mindset and living frugally does not happen overnight.

It is common for people to convert to a frugal lifestyle over a longer period of time.  As you start to live more frugally little by little, these small frugal wins start to stack up over time and make a difference in your financial situation.  

If you would like to learn more about how to start living a frugal lifestyle, you can download my frugal living workbook.  It includes worksheets to help you start living more frugally, a frugal living checklist of 99 frugal living tips, and a tracker to help you track your frugal wins for a full year! 

Or check out some of my other frugal living posts:

Stop keeping up with the Joneses

I know it can be so tempting to go out and buy all the latest and greatest gadgets, electronics, and cars.  This can be especially tempting when your friends go out and buy them!

But with these new toys comes lots of bills and debt.  So if you want to live below your means, you will want to avoid financing these things and taking on more debt to purchase them.

Avoid comparing what you own to what other people own. Many times those people that have all the latest toys are living above their means with a ton of debt.

Avoid lifestyle inflation/creep

Getting raises and advancing in your career is a great way to widen the gap between your income and expenses.  Try to avoid a phenomenon called lifestyle inflation as your income grows.

Lifestyle inflation is when your spending increases after your income increases.  An example of this would be trading up to a more expensive car when you get a promotion at work. 

Lifestyle inflation makes it much harder to live below your means and meet your other financial goals.  Instead of spending more money when you receive a raise at work, try using that extra money toward your financial goals.  

Adopt a minimalist lifestyle

Minimalism is about purging your home of the clutter and the things that don’t provide value to your life. It is about living a life of simplicity and removing distractions from your life so that you can focus on the things that matter most to you.

Minimalism can help you to live below your means.

As you purge your home of the belongings that don’t give you happiness, it helps you to realize the importance of intentional living and spending. This can help you to avoid filling your home back up with material possessions you don’t need.

Once you adopt a minimalist lifestyle, it will spill over into other areas of your life. Simplifying and organizing your finances will allow you to understand and track your financial situation and make changes more easily. For example, do you really need 5 different savings accounts for each of the purchases you are saving for? Probably not.

Avoid debt

If you are trying to live below your means, you will need to avoid taking on unnecessary debt.  So think about any big ticket purchases you have coming up. 

Are you looking to buy a home soon?  Make sure you will not be stretching yourself too thin with a big mortgage payment.  

According to Chase.com, you should use the 28% rule when determining the amount you can spend on your home.  This states that your total housing costs (including mortgage payment, taxes, and insurance) should be less than 28% of your gross income.  

If you think you need to replace your car soon, think about buying a used one.  If you have to finance a car, keep the loan term as short as possible to decrease the amount of interest you will be paying over the life of the loan.    

Before you go car shopping, figure out your price range.  You can use online calculators to crunch some numbers to figure out what to spend on a car based on what you want your monthly payments to be and the probable interest rate.  

11 Ultimate Tips to Live below your means

Have an emergency fund

Keeping money in a designated savings account earmarked for emergencies will help prevent you from taking on more debt in the event of a financial bump in the road.  

Many financial institutions say you should have 3-6 months of expenses saved up for emergencies.  Having this money set aside will help you to live below your means because you will be prepared to handle unexpected financial difficulties and decrease the likelihood of taking on more debt.  

Think of you and your partner as a financial team

It is so important to be on the same financial page as your spouse or partner.  Talk about and set financial goals together.  Come up with a game plan to achieve your goals.  Review your progress toward your goals frequently so you both know where you stand.   

Financial goal setting will help you get in the right mindset to live below your means.  If you don’t have established goals, it is much easier to spend any extra money you could have otherwise put toward reaching those goals.  

If you need help with goal setting, you can find my post on setting financial goals here

Educate yourself about money

Educating yourself about money is one of the best things you can do for financial situation. By educating yourself, you are setting yourself up for making the best decisions about your money. There are so many great books on personal finance out there!

The one that got me hyped up about paying off our debt when we first got married and bought a house was Smart Couples Finish Rich by David Bach. I highly recommend it if you and your spouse or partner are trying to get your financial situation under control.

Other great reads are:

You don’t have to go out and spend money on books to educate yourself. There is so much information on the internet for free. Try looking for a couple of personal finance blogs that you enjoy reading and subscribe to them.

Increase your income

Finding ways to increase your income is a great way to get you living below your means! There are tons of ways to increase your income!  Some ideas for increasing your income are:

  • Asking for a raise at work
  • Getting overtime hours approved
  • Finding a better paying job or position within the same company
  • Getting a second job
  • Starting a side hustle

If you are looking for different ways to make extra money, here are 50+ Ways to Make Extra Money.

How do you know if you are living below your means?

Let’s take another approach to this question.  Here are some signs to look for to warn you that you are living ABOVE your means:

  • You have credit card debt
  • You don’t have an emergency fund
  • You are stressed about money
  • You are losing sleep because you can’t stop worrying about your financial situation
  • You aren’t able to save even 5% of your income
  • You aren’t putting money in your 401K because you are scared your paycheck won’t cover your bills
  • You don’t have a budget set up
  • You and your spouse or partner are fighting about money

These are just a few signs you could be living above your means.  It is not a complete list!

Final Thoughts

Living below your means is a big part of living a happy, healthy life.  Your financial situation can affect all areas of your life including your physical health, mental health, relationships with family and friends, and work.  

Once you have decided you want to make changes to your spending habits and live below your means, you will need to come up with an action plan.  Sit down with your partner and talk about how you can work together as a team to get in a better financial situation.

After you track your spending, feel free to download my Budget Binder to help you create a simple household budget.

If you are looking for ways to cut expenses and be more intentional with your spending, my Frugal Living Workbook can help! 

Do you have any other tips to help someone live below their means?  Please let me and everyone else know in the comments!

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