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Living Below Your Means

Living Below Your Means
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One of the essential steps to becoming debt free and financially independent is living below your means. What does this mean? In essence, it is spending less than you earn. When you are living below your means you will not be getting into more debt you can start paying down your existing debt and put money towards investments or other financial goals. So it sounds fairly easy – how is it done?


How To Live Below Your Means


Working Out Your Income

This could be an easy or difficult task depending on your situation. If you get paid regular amounts and in a regular time frame it will be easy to calculate the last 3 – 6 months of income. If your income involves multiple sources, irregular payment frequencies or amounts, commissions, seasonal changes and the like you will need to calculate your income based on some averages.

Tracking Your Spending

Now that you are aware of your income it is time to track your expenses and spending. You can check out my post, Simple Budget Success with Automation and download the excel spreadsheet. This spreadsheet will assist in listing your expenses, frequency and weekly expenses. Another option is to go through your last 3 – 6 months worth of bank transactions and list out your expenses. The further back in time that you go the more accurate your calculations will be.

Don’t forget annual expenses such as house, contents or vehicle insurances. One that I always forget is drivers license as it can be paid many years in advance.

It may also be a good idea to use a piece of budgeting software or a mobile app to keep track of your spending.

Basic Math

Now that you know what your income and expenses are its math time. Take your income and deduct your expenses. If you have a positive number that is great you are living below your means. If the number is negative you have just identified a problem and can start taking steps towards living below your means. Even if you are already living below your means you may wish to widen the gap.

Changing the formula

There are two ways to adjust this formula to your advantage. Earn more or spend less or a combination of the two.

The easiest path and the most discussed in the world of personal finance is to reduce spending. One area to look at is getting rid of any subscriptions you don’t really need. Now that you know what your major expenses are you should be able to see where you can cut back. The 50/20/30 Simple Budget Rule is a good place to start to see if your expenses are too heavy in a particular area.

The other side of the formula is to earn more. Work additional hours, get a second job, ask for a raise, start a side hustle, sell some unwanted items. There are many ways to increase your income.

Avoid Lifestyle Creep

Lifestyle creep is one of those things that sneaks up on us like a cat in the dark. Also known widely as lifestyle inflation – increasing spending as our income increases.  So you finally got that new job or pay rise, you deserve a treat, new car, holiday. While it is great to reward yourself is is also important to put some of that new found income to work – pay down debts, build up an emergency fund or start investing.

Revisit And Review

Living below your means as simple as it may sound requires frequent revisits and reviews. Maybe every 6 months a quick review to ensure you are still on track especially when any large financial decisions have been made.

Do you have any ideas that are helpful for living below your means? Are there areas that always cause you problems? I would love to hear in the comments below.

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