Healthy personal finance usually begins with some version of “living within your means”. In other words, your income and your expenses are in alignment. You buy things you can afford. You have a rent or mortgage payment that fits your budget. You’ve got a nice balance going on.
At most stages of your life, living within your means should be the goal. But, there are stages where you may be able to go one step further and actually live below your means. You can successfully manage while spending significantly less than your income allows. And while it may not sound all that appealing to live below your means, you can do yourself a lot of favors by recognizing when this is possible and taking steps to make it happen.
Finding the sweet spot
When you’re young and first starting out, it can be hard to find enough money to just make it by, no matter how simply you live. Later, when you have kids and a mortgage and a ton of other financial responsibilities, there’s just no easy way to spend substantially less than what you have.
That’s why the ideal time to explore living below your means is that sweet spot in between, when your income either grows or remains high, but your necessities are lower. What often happens in these cases is that we begin to adjust our spending to fill the gap. This is sometimes referred to as “lifestyle creep” – when you start spending more and more simply because you can.
Rather than letting your spending creep upward, however, this is a great opportunity to live below your means. Spending below your means is a great way to build savings, pump up your retirement funding, and work towards buying a home, among other goals.
Luckily, if you’re able to live below your means, there are a few easy steps you can take to make that happen:
Automate your savings. Have a portion of your paycheck deposited automatically into savings. This is money you never touch and are therefore never tempted to spend. If you get a raise, for instance, considering having the amount of the raise diverted directly into savings, while you continue spending as you did before the raise.
Create a strict budget and stick to it. When your income is more than adequate, it’s hard to be all that disciplined when it comes to budgeting. You can be lax, because you can afford to be. But having a solid income and no budget is a dangerous combination, which can lead to a lot of unnecessary and potentially destructive spending. No matter how comfortable you are, it’s important to maintain some sort of spending structure or else risk losing all the benefits of having a higher income.
Keep your big picture goals in mind. The temptation to splurge will always exist and it’s not the end of the world if it happens every now and again. But if you lose sight of why you’re living below your means, you may find those splurges happening more and more often. When faced with the decision to spend on a want rather than a need, try to keep your big picture goals in mind. It’s easier to say no to dining out, when you think about the dream house you’re saving to buy.