10 Benefits of Living Below Your Means
What do most people do when they get a raise? Of course, go out and celebrate by spending more money. If you make more, you should spend more, right?
Yet, if you learn the benefits of living below your means, you may want to reconsider this way of thinking. If you want to get ahead financially, learn to save more for an emergency, live debt free, and get your finances in order then living below your means will help you achieve your financial goals.
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What does It mean to Live Below Your Means?
Living below your means simply means spending less than you make. Contrastingly, spending more than you make will put you in debt and cause unnecessary stress in your life. So learning how to budget and save money can set you on the path to financial freedom. If you are living outside your means, it is best to learn some savings tricks to help curb spending.
When setting up a budget, start tracking your spending. Once you have a good idea of how much you spend each month, then set up your budget accordingly. Then take a look at what you can cut like monthly subscriptions you don’t use or pricey gym memberships. Once you have cut out the unnecessary spending form your budget, you can start saving that money and living below your means to build your savings and grow your money.
Why Should You Live Below Your Means?
When most people get a raise, they think, the more money I have, the more money I can spend. This idea of lifestyle creep will lead to less money in the long run.
In fact, if you get to raise or bonus, but continue living as were before the raise, you will be able to save up money and set aside money for emergencies, retirement, and other larger purchases such as a home or wedding. You can also invest that moeny and earn more money with compound interest.
Furthermore, the simple act of learning to live below your means will benefit you in the long run. It is a small sacrifice to live better in the future.
Why it is Important to Live On Less Than You Make
If you make a certain amount of money each month, let’s say $2000, but you are spending $3000 you can easily see how this will not bode well for you. You will wind up in debt and often people are only able to do this because they have credit cards. However, paying interest on everything you buy, means you will be spending more on everything too.
10 Benefits of Living Below Your Means
So what happens when you live below your means?
As you ready, you can study why living below your means will “pay off” in the end. Many don’t feel it is worth it, but my husband and I have been able to pay off our house and cars so we are completely debt-free and we take at least two vacations per year with the money we save.
#1 Debt-Free Living
Living below your means will ensure you are debt-free. If you are not spending more money than you make, you will not accumulate debt which in turn will result in you paying more for your items when you calculate interest.
If you already have debt, learning to live below your means can help you pay down debt and start building your savings. You can use frugal living tips to start living below your means and learn how to get out of debt.
One way to pay down debt is to use the debt snowball method, made popular by financial guru Dave Ramsey. In this method, start paying your smallest debt first. After you pay down credit card #1, you can add that money to your next largest debt and so on, while continuing to pay at least the minimum balance on each until the debt is paid in full. You continue to add the extra money to each debt, kind of like a snowball until you are debt-free.
#2 Financial Security
What is financial security? Financial security means you are able to pay your bills, save money, and have money set aside for an emergency. Basically, you will feel secure because you have the money to pay for what you need in life and in many cases a surplus of money that you save up from living below your means.
You will have peace of mind in knowing you are able to pay your bills and you have set aside enough moeny to cover emergencies.
In this way, you will be able to build wealth and start working on other financial goals.
#3 Less Stress
According to webmd.com one of the leading causes of stress is financial obligations. If you are worried about where you are going to get the moeny to pay your next bill, you will often feel stressed and tense. Yet, if you are living below your means, you will have financial security and therefore, will be able to save for an emergency and pay your bills without stress or worry.
In fact, having fear and uncertainty about money, can cause unnecessary anxiety and lead to more health concerns if the stress continues which will, in turn, cost you more money.
Yet, if you learn to live below your means, you will have extra money to pay for your expenses and be able to see aside money. Therefore, your stress will be eliminated in the financial area.
#4 Less Competition
Once you decide to live below your means, you will feel a sense of calm. You will start to realize you do not have to compete with your neighbors or “keep up with the Jones.”
As once said by Theodore Roosevelt,”Comparison is the thief of joy.” Often people spend moeny due to jealous feelings. Seeing your neighbor pull in with that new BMW, causes you to want your own BMW. When in fact, you probably have a car that works just fine and doesn’t need to be replaced. Yet, if you are into frugal living and saving money, you will often come to the conclusion, that you don’t need to buy things just to “keep up” with others.
You use the things you have and buy quality so your items will last. That doesn’t mean you can’t’ ever buy anything nice. In fact, living below your means is the opposite. You will buy quality items that last, but keep the mindset that you don’t need the latest and greatest, every time something new hits the market.
You can learn to love what you have, and instead of spending your moeny on everything you can just to keep up with others, you can use your money to have financial security.
Although you may not look like the richest person on the block, you eventually will be if you are able to save and invest. Instead of spending moeny on material things, you can put your money towards building your savings account and using the power of compound interest.
#5 Build Wealth
As mention above in this post, you can take advantage of compound interest. If you choose to invest your money, your money can grow and the interest can be reinvested to continue to earn more money.
You can choose to invest in a retirement account or a regular investment account. The difference is in a retirement account, you will have penalties if you withdrawal early, depending on the type of account. If you have already been taxed on the money, typically you can take up to a certain amount out without being penalized. But if you are contributing pre-tax dollars, you will have penalties for early withdrawals.
Yet, by investing in a regular brokerage account, you can cash out your money when you want.
I suggest doing both. If you understand the stock market and are willing to take the risk, you can invest in individual stocks or mutual funds. If you are new to investing, you can learn more at Motley Fool if you feel you need some help. The Motley Fool offers different investing packages that can help you learn how to make money on your money.
If you learn to live below your means, you have the potential to become much richer than you are now. In fact, many millionaires became rich by living below their means and investing the extra moeny in stocks, bonds, ETF, or retirement accounts.
#6 Prepared for Emergencies
When you live below your means, you are able to build up an emergency fund with the money you save. You can keep money in sinking funds and set up one fund specifically for emergencies. This will come in handy when you have a lofty car accident, hospital bill, or a tree falls on your house/car. Whatever the emergency, you can sleep well knowing you are covered. In some cases, you will need money for a deductible if you have insurance, but in other cases, you may be paying a co-pay for an unexpected doctor’s visit. I’m mentioning these because I have had all of these things happen to me, including the tree falling on my car. You never know what life will through at you, but learning to cut costs will help you prepare when life throws you a curveball.
It is best to set up six to nine months of your monthly expenses in case of job loss. You will be prepared for the future and ready for any emergency that pops up in life.
Make sure to compare high-yield savings account and decide where to keep your money. You can also try a money market account, depending on which is best for you and which will earn more money in the long run.
Learn more about CIT Bank in my review post
#7 Invest Money
How do frugal people become rich? They live below their means and invest what is left. If you are new to investing, you can learn more about investing here or invest your spare change in an app called acorns.
Click here to sign up and start investing your spare change today! You will get $10 after making your first investment and the lowest plan is $1 so that is basically 10 months free to try it out.
Whichever you choose, I suggest putting money away for retirement in a 403b, 501k, or a Roth IRA and investing. If you can invest in some safe funds, you can pretty much let compound interest take over and continue to grow your money until retirement.
Yet, if you want short term gains, you will need to do your research and decide what companies you want to invest in. If you are new to the stock market, start small until you learn what you are doing. That’s why the acorns app is so great. You aren’t investing that much, but you will begin to learn the fundamentals of investing and later can learn to invest higher amounts.
Acorns can help you start investing today
#8 Freedom
Living below your means gives you freedom. You will be free to do what you want and not have to worry about money.
If you are trying to keep up with your neighbors, you are adding unnecessary stress to your life, and you will only end up in debt if you continue to spend moeny you do not have. As time goes on, you will not be able to do what you want in life, because of moeny.
If you really want to get serious about savings and living on the cheap, you can start looking into the F.I.R.E. movement. If you haven’t heard of F.I.R.E. (Financial Independence Retire Early) you calculate how much you will need to retire early and live as frugally as you can, until you have reached your goal. If you retire early, you will then have the freedom to live life as you please and take on work if you want to, not because you have to.
If you have enough money to live off of, you can work remotely or make money from a hobby since you will already have the bills paid. You have the freedom to live the life you choose.
#9 Save for Big Purchases
Learning to live low key will help you save for big purchases. For example, say you get a raise at work, and instead of spending more, you decide to save the extra money. You can start saving up for something important.
Perhaps a trip to Spain or a down payment for a new car. You will be able to do these things because you have the money. You can avoid paying interest on credit cards if you save up and pay cash for a big purchase.
#10 Rainy Day Fund
What is a rainy day fund? It is a fund set aside without a specific purpose but is typically used for a one-time smaller expenditure. For example, if you want to pay for music lessons for your kid, or decide to take a small trip to a water park by your house, you could use the money from your rainy day fund to pay for these expenses.
Rainy Day Fund Expenses:
- vet visits
- new tires
- music lessons
- unexpected copay
- broken appliance
In fact, having an emergency fund and a rainy day fund will help you feel extremely confident in your finances. You will be prepared for an emergency and you will also be able to do things for yourself and your family when the need arises.
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Benefits of Living Below Your Means Final Thoughts…
If you are serious about saving money, it is best to learn how to live below your means. You can gradually build up an emergency fund, rainy day fund, and pay cash for big purchases so you will live a debt-free life. You will have more freedom and time to do what you want and you will not be tied down to stuff and debt. Living below your means has many great benefits and learning how to live cheaply will help you in the long run.
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