The sayings “live within your means” and “live below your means” are often used interchangeably. However, I believe they have slightly different connotations. Living within your means simply indicates that you aren’t racking up debt to cover your lifestyle. Even someone who’s living paycheck to paycheck is technically staying within their means because they aren’t going into the red every month.
On the other hand, living below your means suggests that you’re actively downgrading your lifestyle so you can save and invest more money. Instead of trying to keep up with the Joneses, you choose to live like someone in a lower income bracket in order to build financial security and wealth. If you’re tired of just getting by each month, here are three tips to help you live below your means rather than within them.
Downsize Your Biggest Expenses
There are lots of personal finance rules out there to help borrowers figure out what kind of car or house they can afford. For example, experts recommend that you spend no more than 30% of your gross monthly income on housing.
Someone living within their means might choose to splurge on a dream apartment that costs nearly the maximum amount they can afford. But if you’re trying to live below your means to meet aggressive investing goals, it’s better to find cheaper housing. Getting roommates or renting a smaller apartment that only takes up 15% to 20% of your gross monthly income will enable you to build wealth much more quickly.
The same goes for car payments. Experts say your car payment shouldn’t exceed 10% of your take-home pay. However, buying a more affordable car you can pay cash for can help you live below your means.
Resist The Urge To Upgrade
Once you’ve secured affordable housing and transportation, it’s important to resist the urge to upgrade if you want to live below your means. It’s tempting to move into a bigger apartment or get a nicer car when you get a raise. In our consumerist society, it can be difficult to be content with what you have. But remember that giving into lifestyle creep can be a vicious cycle because there will always be a nicer neighborhood to move to or a more luxurious vehicle to buy.
Keeping your lifestyle the same as you grow in your career will enable you to funnel more income toward your savings and investments and build a bigger nest egg. Creating financial security for yourself and future generations of your family will feel much more satisfying in the end than driving a nicer car.
Buy It Twice
Someone who lives within their means believes that they can afford a purchase if they have enough money in their bank account to cover it. But if you want to go a step further and live below your means, I suggest following the “buy it twice” rule. Basically, if you can’t buy something twice right now out-of-pocket, you should delay the purchase until your bank balance grows.
Following this guideline helps ensure that the purchases you’re making aren’t stretching your budget or compromising your financial goals. Some people even transfer the same amount of money they spend on unnecessary purchases to their investment account, allowing them to strike an even balance between spending and saving.
Do you have any tips for living below your means? Share them in the comments!
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.