Living below your means is probably a personal finance tip that you already know about. In fact, spending less than you earn has been talked about so often that it doesn't even feel like advice anymore — many people's reaction is, "Isn't this obvious?"
However, not everyone who knows what to do actually practices what they know. If you are one of those people, you probably won't be able to achieve the following dreams unless you start living within your means. (See also: Living Within Your Means Isn't Nasty)
Spending less than you earn gives you the option to have more time to do things you actually want to do. You don't have to take a job with tons of overtime just because you need the money or a far away job that sucks out all your time because the daily commute is extremely long.
If you still choose to work like everybody else who absolutely needs every penny of their paychecks, you can actually retire much earlier than conventional wisdom dictates. I know plenty of frugal people who retired in their 50s even though they never earned a high income. When you spend less, your need to accumulate a really high nest egg reduces too.
If you love what you do, you won't feel like you are working a day of your life. Yet, too many people work at jobs they hate because they need the income to keep coming in. Funny how most people actually can't stop themselves from buying even though the mortgages, car loans, and credit card bills are like chains that link their lives to everything they find miserable.
Unless you've been living in a cave (or have so much money that you have your assistant carry your wallet and pay for everything), you know that prices of just about everything have gone up. Fortunately, not all is bad in regards to inflation. People who spend less than they earn are have an easier time adjusting to the new prices because even though their companies' raises might be smaller than the inflation rate of goods, these people are more likely to have the increases to their cost of living fully covered by their raises.
Here's an example. Let say you make $50,000 dollars and get a 2% inflation adjustment this year, giving you a $1,000 raise. If you only spend $20,000 a year, and a 2% increase on $50,000 is $1,000, it's like you have a 5% increase on what you can spend.
Before you know it, living below your means will equate to having a small cash reserve of your own built up, giving you the power to buy the items that you want, when you want. And if you are like many people out there, the urge to buy immediately might actually dissipate because you know that you can make these purchases at anytime, even if there is a coupon that urges you to buy now. Furthermore, once you skip a few purchases, you will probably find that most of all those impulse buys are really just unnecessary to begin with, saving you even more money.
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The line between knowing what you should do and actually doing it can seem so thin, but it's so difficult to cross over sometimes.
Readers, what other goals do you achieve by living below your means?
I'm 23 and probably have more saved up than most 40-year-olds. I look forward to doing a lot of traveling once I find the right guy.
When my wife and I were first married 13 yrs ago we lived off my income and saved her entire income. (30k yr) Then came the kids and now we still live off my income but she has had no income for 10 yrs. Savings except 401k are gone,money is tight but for her to stay home with them pays dividends that are too numerous to list. One day when they are older and need us less she will go back to work and well again save all her income but for right now were broke but happy.
Living below my means allowed me to save up enough to say goodbye to my corporate job over a year and a half ago. Since that time I co-founded a start-up and sold my shares to the other co-founder. During this time I've also had plenty of time to focus on my relationship and me. Working at my corporate job I was 99% certain that I would have a stroke by 40 and be single again. Now, my health and relationship are back to where they should be. It's so important to stop and figure out what's really important.
Living below your means can seem easier said than done. However, I've found that even a one income household can live significantly below their means by thinking creatively to cut expenditures.
Great post! I especially like that last one. A perfect example is the cost of hard drives lately. Due to flooding in Thailand, the price is way up. However, I have spares from before the price jump, so I'll just wait to purchase any hard drive based electronics until it levels out again.
After reading an article similar to this one from MoneyNing, I was able to cut back on unnecessary purchases and saved up to 1200+ to cover up the months in the future that I knew I wasn't going to make enough. Granted that I have to start over again, at least I know now that I have the power to do such a thing. It took willpower, a strong desire to change and a fierce notion that trying something new will help me in the long-run. Am forever grateful for articles that tout "living below your means". Now I will find a way to be able to live "beyond" my means, to save up money in a way I never thought I could - to have a big fat savings that is always boundful!
Things I've been able to achieve by living below my means:
- quitting a job that took a wrecking ball to my health and sanity
- NOT being the scary statistic of the 50% or so who can't come up with $1-2k w/i 30 days (yikes!!!)
- NEVER having to ask my parents or anyone else for money (post-college, at least)
- making healthcare decisions based on what is best for me, not what is cheapest ($700 out-of-pocket for an iud? best money I ever spent!)
- enjoying 8 days in Barbados with a dear friend - paid for in cash
- easily affording the plane ticket to attend my best friend's semi-impromptu wedding on the other side of the country
- take unpaid time off without affecting my budget (budgeting off of two biweekly paychecks/month=2 'extra' paychecks or 4 weeks of time/year) so I'm not limited to the scant 2 weeks of PTO my employer offers
- not just financial security, but actual security: it's easier to leave a relationship (or any other living situation) that turns bad when you aren't dependent on that person for your basic needs. This is a major step in breaking the chain of domestic violence that is sadly a lifetime struggle for many ON TOP OF the struggles of poverty itself