How to Successfully Live Within Your Means (even in this economy)
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How to successfully live within your means (even in this economy)
With each passing year, it might become harder and harder to live within your means. Even when you’re being mindful and calculated with your spending and doing what you can to avoid lifestyle creep, life keeps getting more expensive.
But even though so much is out of our control, this doesn’t mean we should give up on attempting to live within our means. We might not be able to do it perfectly, and some months might be better than others, but keeping it as a goal can help us in the long run.
Let’s look at a few tips that can help you do this.
1. Figure out how much you’re currently spending on needs
Needs are expenses that aren’t a choice. You have to pay these every month – there’s no way around it. Examples include housing, utilities, insurance, food shopping, minimum debt payments, and, for some people, daycare.
One of the first step to live within your means is understanding how much you’re spending on these items each month. Not an estimate of these expenses, but an actual number.
Once you have this number, you can then make a plan for the rest of your money, which includes how much you spend on “wants: and how much you are able to save. This is key. Overspending on wants is what pushes a lot of people outside of their means.
To get a clear idea of your needs, you’ll need to pull out monthly statements or review your bank account to get an idea of how much you pay for groceries, gas, and utilities. These types of expenses tend to vary from month to month, so as you track your spending, look at your average and then round up a bit to give yourself a little wiggle room.
Once you do all of that and you know exactly how much you’re spending on needs, take that number and divide it by your monthly take-home pay to figure out the percentage of your income that you’re currently spending on needs. This is crucial.
If you’re spending 70% of your income on needs, that means you only have 30% remaining for everything else, and in order to live within your means, your extra spending cannot exceed 30% of your take-home pay. (Related: Get Your MONEY MINDSET BULLET JOURNAL and stop feeling like you can’t get ahead).
2. Decide how much to dedicate to saving and debt repayment
But that’s only the beginning, and just because you have 30% left over doesn’t mean you should spend it any way you choose.
Some people might look at their extra money and immediately start making plans. They might book more self-care appointments, plan more getaways, or start mindless spending.
But before you do anything else, figure out how much of that 30% will go toward savings and debt repayment.
Lack of a savings account and too much consumer debt are two huge barriers to financial health. When some people live paycheck to paycheck or above their means, these are often contributing factors.
Not to long ago someone left a comment on one of my videos saying “it took doing a no-spend month to realize that they actually weren’t broke.” In other words, their income did allow for saving money, but because they were overspending on “wants,” it felt as if they were broke.
So my recommendation (based on the above illustration), and you can tweak this based on your circumstances, is to set aside at least 15% for saving or debt repayment, or both. So if your take-home pay is $3,500 a month, that’s $525 that you can use to either build your emergency fund or pay down debt.
3. Make a plan for wants (use the envelope method or move money to a prepaid debit card)
Now, it doesn’t have to be all work and no play. So if your needs are 70% of your income and you’ve set aside 15% for saving or debt repayment, the remaining 15% can go toward wants.
This can encompass so much, including hair or nail appointments, eating out, subscription services, gym memberships, and basically any other expense that you enjoy but can technically live without.
Keep in mind that the 70-15-15 split is just a recommendation. So if you have a lot of debt that you want to knock out faster, you might set aside 20% for savings and debt repayment and only spend 10% of your take-home pay on wants.
You might try the envelope method for expenses in this category too.
If you keep the money in your bank account and use a debit card, you might swipe a little too much and overspend. But with an envelope, you’re only spending the money that you put inside. Therefore, if you set aside $20 a week for dining out, you’ll put $20 in the envelope – and once it’s gone, it’s gone.
4. Right-size your house
Another thing that can help you live within your means is to right-size your house. And by this I mean not having more space than your family actually needs.
I received a DM from someone who was contemplating downsizing their home. I don’t know the square footage of their home, but they had about 1,000 square feet per person. So if it was a family of four, they probably had a 4,000-square-foot house.
They acknowledged that not only was it too much house, but the cost was also too much and prevented them from saving money and having experiences.
Now, I understand that depending on where you live, it might “not” make sense to move into something smaller. If you’ve lived in your home for a while, smaller places might be more expensive.
However, before making that determination, I recommend researching your local area. Because although moving doesn’t make sense for everyone, it does make sense for some people.
Housing is likely your biggest monthly expense, and if you could knock $300 off your monthly cost with a place that’s still suitable for yourself or your family, that’s a decision you will not regret.
5. Find a side hustle
Sometimes, the only option is to increase your income. Depending on your circumstances, what you’re currently earning might not be enough. The truth is, you can only downsize and reduce spending by so much. In which case, getting ahead will involve coming up with a plan to increase your income.
In the short term, this might include getting a part-time job and bringing in an additional $100 a week. For some people, that’s enough.
Of course, you might not always want to work a second job. So as a long-term plan, look into building your skills, or using your existing skills to start a side business or passive income stream. (Related: Download my insider’s tips to making money as a freelance writer and leverage your existing knowledge to make extra money).
Even though there’s no way to predict the future, prices will likely continue to rise. Now’s the time to put things in motion so that you don’t fall to far behind.
Live Within Your Means FAQ
What does “live within your means” mean?
“Live within your means” means managing your finances so that your expenses do not exceed your income. It involves budgeting, prioritizing essential needs, saving for the future, and avoiding unnecessary debt. By living within your means, you ensure financial stability, reduce stress related to money, and have the ability to handle unexpected expenses without compromising your financial health or relying on credit.
How to live within your means?
To live within your means, start by tracking all your income and expenses. Create a budget that prioritizes essential needs like housing, utilities, and groceries. Allocate a portion of your income for savings and debt repayment. Limit spending on non-essential wants and avoid lifestyle creep. Regularly review and adjust your budget to reflect any changes in your financial situation, ensuring you maintain a balanced approach to spending and saving.
Signs that you live within your means?
Signs that you live within your means include consistently having savings, paying all your bills on time, and avoiding accumulating debt. You have money left over after covering essential expenses and can handle unexpected costs without financial strain. Additionally, you feel in control of your finances, are not stressed about money, and can plan for future goals such as vacations, retirement, or emergency funds without compromising your day-to-day living.