You need to learn how to live below your means if you really want to improve your financial situation. It does not matter if you have a lot of debts or if you are enjoying a great financial situation. This mindset can help you maximize your finances so you can reach as many financial goals as you can.
But what does this mean?
It means you will spend less than what you spend. If you earn $4,000 a month, you should limit your expenses to $3,500 or less. You need to have that extra amount free for unexpected expenses. This will keep you from being in financial distress after missing one paycheck. Apparently, ⅔ of households with a yearly income of $30,000 cannot cover basic necessities if they miss just one paycheck.
These are the people who can classify themselves as living from paycheck to paycheck. They may be living within their means, but most of the time, that is not enough. If they do not leave something extra, they might be pushed into a financial crisis once an unexpected expense presents itself.
Tips to live below your means
When you are in the midst of a debt consolidation program, living below your means will bring a lot of benefits in your life. But before we can discuss that, let us find out how you can live below your means.
Here are some tips that you will find to be very useful.
Get your current income
Start by getting your net income. If you are going to live below your means, you cannot base your income on the gross amount that is given to you. Get the one after all the deductions and taxes. That will make it easier to base your calculations on. But it is not just the amount that you need to consider. It is also important for you to determine when you get paid. If you receive an irregular income, that can have a huge effect on how you can lower your expenses.
Rank your expenses according to priority
After you have determined your income, you need to make a list of everything that you spend on. To be accurate about it, you can opt to observe everything that you spend each month. If that means carrying a notebook with you and jotting down every expense, then that is what you have to do. This will help you identify where your money is really going. When you have the list, you should rank it according to priority. Put the expenses that you can live without at the bottom of the list.
Set a spending limit
With the list of expenses in your hand, you can now make plans on how you can limit your spending so you can live below your means. There are two ways that you can do this. The first is deciding on the extra money that you want to have at the end of the month. For instance, if your net income is $4,000 and you want to have $300 left behind each month, then your spending limit will be $3,700. Another option is to identify all the expenses that you absolutely must-have. Anything that is not a necessity can be removed from your spending limit. Whatever is left can be your savings for the month.
Of course, the second option will be a problem if your necessities will only allow a small amount of money to be left behind – or even none at all. If that is the case, then you need to look at your basic necessities and find ways to lower the allocated budget for each. That means you might have to downsize your lifestyle.
Stick to your budget
According to statistics, almost half of Millennials are enticed by social media to overspend. If you know that you can be easily influenced by your peers to spend more, you need to stay away from all the temptations. That way, you do not have to suffer trying to battle the urge to spend. If you do not know anything about what your peers are recently spending on, you will not feel the need to do the same.
Give your income a boost
If you cannot do anything about your expenses because they are already filled with basic necessities, do not lose hope. You can still live below your means if you increase your income. This will require you to exert more effort but it will help stabilize your financial situation faster – especially if you are in the midst of a debt consolidation program. You can ask your employer for a raise or get more shifts. But it will probably serve you best if you get a side gig. This will not just increase your monthly cash flow, it will also secure your source of income. If something happens to one source, you can still rely on another. It may not be enough but it will be better than nothing.
Change how you use your credit cards
We are not saying that closing your credit cards will help you live below your means. However, you need to make sure that you are using it correctly. Some people rely on their credit cards to pay for basic necessities – not for rewards but because they are short on cash. This is not good for your financial health. And it is not a good idea while you are in the midst of a debt consolidation program. Keep yourself from borrowing more money until after you have paid off your debts. Once your debts are paid off, you can use credit again – but be very careful when you do. Make sure you will only use it smartly this time so you will not abuse it.
Save up for an emergency fund
Finally, if you really want to live below your means, you need to have an emergency fund. This will help you stay away from debt. It will also keep you from feeling too much stress when you encounter an emergency. This will allow you to make better and smarter decisions while trying to get out of the tough situation you are in. Even if you are feeling desperate, you can still make better decisions that will not compromise your finances.
How living below your means makes debt consolidation easier
When you live below your means, it brings a couple of effects that will specifically make your debt consolidation plan effective.
It will help secure your debt payments
First of all, it makes sure that you will always have debt payments. The extra money that will be leftover from your monthly income can be used to boost your emergency fund. That way, if something unexpected happens, you can use the funds and not compromise your monthly payments.
It can help you get out of debt faster
Living below your means will also help you expedite the debt relief process. If you already have enough emergency funds, you can use the extra money to give your monthly payments a boost. The more you can pay, the faster you can get out of debt. Once you are debt-free, you can start working on your other financial goals.
It teaches you to be cautious with spending
Finally, your efforts to live below your means will teach you how to be more cautious about your spending. Since you know that you need to limit your expenses, you will think twice before making an expense. This will help keep you in line. Hopefully, the habit will stick even after you get out of debt.