Many of us are guilty of having a champagne taste with a beer budget—meaning wanting materialistic items that make you begin to start living above your means. With nonstop releases of the newest electronics, designer clothing, and cars, we are always being enticed to purchase the latest and greatest product. No wonder the average credit card debt in the U.S. household is over $5,000!
It’s difficult to admit you don’t have the budget for a fancy house or a brand new car, but it’s essential to start living below your means. You can set yourself up for financial success by making a financial plan and resist living above your means.
Why is it important to live below your means
By living below your means, you can achieve financial freedom. Being out of debt enables you to save more money for unexpected expenses or events such as a job loss. In 2020, over 4 million jobs have vanished due to the pandemic. If you are living above your means with no savings and counting the days between paychecks, it can be nerve-wracking and set you up for financial failure.
It’s important to start living below your means now to start saving money immediately, pay off debt, and also have some peace of mind. Rather than having to learn to stop living above your means once it’s too late, you will already be savvy with your money and not scrambling for cash at the last minute.
How living above your means impacts your finances
Living above your means is expensive in many ways. You pay high amounts of interest on credit cards, you buy a car that straps your budget, or maybe even buy a house that is a bit out of your salary range despite what it may say on paper.
Just because it looks like you can afford it doesn’t necessarily mean you can if your situation were to change. When you make a purchase, you need to consider the unexpected expenses that may come along with it. For instance, if you purchase a home, you need to consider the cost if something breaks or gets damaged and isn’t covered by insurance.
Impulse purchases are the worst when it comes to living above your means. It’s way too easy to charge on credit cards when we see something we think we must have. When you charge it and don’t pay off your balance, you pay way more for that handbag than you think. Living above your means creates financial chaos.
Signs you’re living above your means
When it comes to your finances, there are some key indicators to help you determine if you are living above your means. The sooner you identify them the better.
1. You don’t have an emergency fund
An emergency fund is money set aside for unexpected events and life emergencies. The goal is to have at least 3-6 months of essential living expenses in an emergency savings account. Most people don’t have enough money in their emergency savings fund. This may seem hard to attain, but you can start with your first goal of $1000 and build from there.
2. You have credit card debt
Credit card debt is expensive. Especially if you have a higher rate credit card. If you only pay the minimum payment, it can take you years to pay off the balance and it can cost thousands of dollars. If you use your credit cards, it's best to pay off the balance every month. By paying the balance in full, you avoid paying interest and also avoid racking up debt.
3. You’re not saving at least 10% of your income
One of the best ways to save is to start by saving at least 10% of your income every pay period. For example, if you make $500 a week, you will save $50 every paycheck. By following this 10% approach you can quickly save up your first $1,000 for your emergency fund.
4. You are purchasing big-ticket items despite your finances
Are you upgrading your phone every year, or buying expensive designer bags on your credit card? If so, you are definitely living above your means. The infamous saying “charge it” is a fast way to go into debt.
5. You're paying for expensive vacations you didn't plan for
Everybody needs a vacation, but if you aren’t saving your money in order to take a vacation and you’re charging it instead you aren’t living below your means. Vacations are expensive and require effective budgeting to prevent going into debt.
How to start living below your means
You’d be surprised at how quickly you can learn to live below your means with the right budgeting tactics and financial resources. By applying the right money mindset and frugal lifestyle you are sure to acquire the financial success you desire. Try out the following tips to get started.
Make a budget
The first step to start living below your means is to make a budget. You can learn how to create a budget that fits your financial needs best. There are a variety of ways to make a budget. Some popular budgeting methods are:
- Cash envelope system
- Percentage Breakouts
- Zero-based budgeting
- App & Spreadsheet budgeting
The important step is to use a budget method that is best for you and that you will stick too.
Create a financial plan
A financial plan is crucial for financial security. Creating a solid financial plan will help you attain your financial goals. Your plan will include what your goals are, a debt payoff plan, an emergency savings plan, an investment plan, and even an estate plan.
Curb your spending
The biggest way to start living below your means is to curb your spending. You can save tons of money by not spending money on things like expensive coffee, clothes you don’t need, and not dining out as often. You can also save money by using cash instead of credit or debit cards. This makes you more aware of how much you are spending daily.
There are many tips and tricks to help you live a frugal lifestyle. You can purchase items preowned such as clothing, electronics, etc. Start couponing and save money at the grocery store and buy in bulk to get items cheaper. Downsize into a smaller apartment or home if needed and sell off items you don’t need for extra money. When you determine your needs vs. your wants you start living below your means by being frugal with your spending.
Improve your money mindset
It’s all about perspective. Improving your money mindset can help you get a grip on your finances. Don’t focus on the negative, use your past mistakes as a learning curve to make the changes to get your money right. Rather than thinking of living below your means as a restriction view it as the path to financial freedom.
Utilize finance courses & resources
It’s easy to feel overwhelmed when you try to make a change with your finances. We’re here to help you get on the road to financial success with our 100% completely free finance courses & resources! You can use these courses and worksheets to help you through your financial journey and stay motivated every step of the way.
You can live below your means
With the right money mindset, budgeting methods, and financial planning, you can easily begin to live below your means. You can even make it fun by participating in a money savings challenge and maybe get a friend to join you to help each other stay accountable. Get started living below your means and you will see that bank account start growing faster than you think!