How to Live Below Your Means. It's Simple.
I've managed to learn a thing or two about what it takes to win financially over the past few years and I'm still learning. It's hard for me not to roll my eyes when I hear financial advisors going on and on about the details, as if personal finance is complicated. I'm sorry all, but I feel like I have this figured out. The only personal finance advice any of us needs is, LIVE BELOW YOUR MEANS. Yes, it's that simple.
Live Below Your Means. Spend Less Than You Earn. Live on LESS.
I'm not sure why this so complicated. So many of us are broke, and we can't seem to figure out why. It doesn't take a Ph.D to figure this out. If we spend everything we make, we struggle. If we spend more than we make, we make it impossible to make any forward progress. But if we spend less than we make, the needle starts to move. Normally, I would add a disclaimer that says, "This is for entertainment purposes. This should not be taken as financial advice. You should consult with a financial professional for your specific needs". But if you live below your means and it bankrupts you, feel free to sue me, cause there's no way that this won't work. Okay, so duh, you knew that. But you still aren't putting away huge chunks of money every month you say? Well...It Starts with an Income
First of all, you'll need a source of income. You can't live below your means if you don't earn an income. Living below your means by definition is living below your income. It means living on less than you make. So step one, get yourself an income. And it can't be a tiny income either. I live pretty modestly and still end up spending between $20,000 and $25,000 per year. And that's just for me. A family living modestly will likely need to spend more than that. Mr. Money Mustache, a popular personal finance blogger, known for his strategically low cost lifestyle, spent $25,046 last year with a wife and a young child. These are very low numbers compared to the typical person. According to this data by the U.S. Bureau of Labor Statistics, the average household had annual expenditures of $49,067 in 2009. That means my spending is less than half the average household spending and Mr. Money Mustache's family's spending is just above half. So let's say you're smarter than the average U.S. household and spend far less than they do at just $40,000 per year. Just to break even, you'll need to earn at least $40,000 after taxes, which is likely a gross income of close to $50,000. That's not a small income and many young adults aren't earning that much. So even if you spend far less than the average family, you need to be earning $50,000 to break even. Income level is important to being able to live below your means. If you're income isn't at a respectable level, you should ask yourself how hard you're trying to raise it. Are you playing a little too much Call of Duty? That may be why. Are you going out with your buddies more than you're reading, learning or working? That could be why. How are you furthering yourself? I'm not a believer than you can only further yourself by going back to school. If you're broke and already have a college degree, how will going back for another degree and going into debt (or more debt) to do it help you? I hate to be the one to say it, but it may ...um..... hurt.. you. In my experience, the more strategic you think about your future and the more you learn and apply from what you learn, the better. And there is no charge for learning. It's free. Income. You'll need it at a respectable level. Use every angle you have at your disposal to bring in a respectable income. And once you have it, protect it with everything you got. That income is how you're going to make it. It's how you're going to pay off your debt. Eventually, it will be how you pile up a bunch of cash so you can do crazy things like buying your first (or next) home in cash, starting a business that you LOVE, or reaching financial independence and retiring early. I'm on track for... well.. all of those. Income...check. Kicking butt at your job and making yourself indispensable...check. Now what?Now, Live This Way... For a Long Time...
Now for the boring part. You're going to cut your lifestyle to the bare bones and learn to live below your means. Cable TV is a thing of the past. Shopping isn't happening anymore. Your grocery budget will rise as you will be cooking 90% of your meals at home and bringing lunches to work. You'll need to set yourself up with a Mint.com account to track every single dollar that you bring in and that you spend each month. You'll need to study your Mint.com account daily to find every possible cut you can make in your monthly spending. And once you've cut your spending to the bare bones, you....live. You live for many, many years this way. It gets boring. You'll be telling your friends "no" so many times that a few of them with unfriend you. That's okay though, they weren't real friends anyway. If you've successfully cut your expenses and started to live below your means to the point that you're living on less than half of your take home pay, congratulations, you'll reach financial independence in 17 years. If you're able to cut further and can live on only 25% of your take home pay, you will be financially independent in only 7 years. Just for fun, let's compare that to the average household. They make $62,857 BEFORE TAXES (which means they likely net much less) and spend $49,067 per year. Let's give them the benefit of the doubt and say they are able to save 10% of their income. At that rate, they will be financially independent in 51 years from the time they started. Fifty one years. That's how long it will take to save for retirement at that rate. Now, sure, leveraging tax advantaged accounts like IRA's and 401k's, etc. will speed that up a bit, but this kind of living will take anyone forever to make progress on. The average household doesn't understand that to succeed financially, you need to live below your means. If you want to make serious financial progress, you need to live WAY below your means and start now. This is what I'm doing and it's what I would recommend to everyone. If you want to win financially, you need to live below your means. It's as simple as that. Spend less than you make.Enjoyed this? Get new posts by email.
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17 Comments
- Ross says:February 13, 2013 at 7:27 AM
"Now live this way for a long time" I like that. Its so true. You got to make budget cuts that you can live with for 10 years. It seems daunting at the beginning but it definitely gets easier.
- Kraig @ Young Cheap Living says:February 13, 2013 at 8:34 AM
Yes, you do. I think that's the trick. It's about changing your lifestyle, not going on a binge.
- Leslie says:February 13, 2013 at 8:00 AM
It's humorous to me that "cutting cable" is usually the first sacrifice listed when it comes to saving money/living on a budget. As though THAT is the reason why you're broke. As though someone who doesn't have cable is in good financial shape. I understand that's not what you're specifically saying but it comes up so often in budget discussions it's grown tiresome.
- Kraig @ Young Cheap Living says:February 13, 2013 at 8:37 AM
Leslie, If a person is succeeding financially (is debt free, has savings and lives below their means), then that's great. I'd never dream of suggesting that they cancel cable TV. They obviously don't need to. But if they're in debt and are spending everything they make, then cable TV couldn't possibly be a good thing. It just so happens to be one of the most practical things most people spend money on that they could cut, without it affecting their lifestyle. I made the cut, even though I loved watching TV at night, and it made my life a lot better in addition to cutting the expense.
- Carrie Smith says:February 13, 2013 at 9:47 AM
I'm working on cutting my lifestyle back again -- mainly because it creeped back up after I became debt-free. Crazy how that happens! :) So now I'm focusing on saving for the future even more, while still enjoying life, traveling and running my business. I like to make a fun game out of how much I (don't) spend each month, and reward myself with certain things. Like you said, it's simple -- but it's not always easy.
- Kraig @ Young Cheap Living says:February 13, 2013 at 1:17 PM
Hi Carrie, Great to hear from you. It's funny, my lifestyle creeped up this past year too. It happened after I was debt free and after I had an emergency fund piled up. My spending tends to go up in the summer and down in the winter. I'm trying to get focused again and stop letting money leak out. It sounds like you're doing really well with your business. Your article on Brazen Careerist generated (and still does) a ton of traffic for me. Thanks again for that. Have a great rest of the week!
- Headed Home says:February 13, 2013 at 1:43 PM
51 years of living a bare bones lifestyle while saving 10%? Ouch. 10% sounds like such a big number to save (and feels huge with lower incomes), but simply isn't enough!
- Kraig @ Young Cheap Living says:February 13, 2013 at 8:35 PM
HH, Yeah, to the average person, 10% probably seems high. It's pretty crazy that it won't get you anywhere inside of 50 years. Ouch is right. We must spread this news.
- Canadian Budget Binder says:February 13, 2013 at 6:26 PM
Living below my means was what I was taught from a young age and why I am debt free today. I learned young about money and never let debt in the door that I could not pay. I save cash for what I need and I'm happy my parents showed me the way.
- Kraig @ Young Cheap Living says:February 13, 2013 at 8:38 PM
CBB, That's great that you had such great examples. Mine were great too and I'm very thankful for that. Many people aren't that fortunate though. The good news is we can turn things around. It's always better late than never.
- John@MoneyPrinciple says:February 14, 2013 at 3:55 PM
Living within your means can be achieved by increasing your income by side hustles. We don't believe in long term frugality but in using common sense. Some things should not be cut - mainly things that make you feel good about yourself. So good haircuts, decent home-cooked food and having friends to dinner rather than going to a restaurant can all improve the quality of life while costing less.
- Kraig @ Young Cheap Living says:February 15, 2013 at 8:18 AM
John, Thanks for sharing your thoughts. Feeling good about yourself sure is important. If you don't feel good about yourself, you'll never have the drive and motivation to live below your means, as it takes energy and willpower to not spend everything you have.
- Laurie says:February 16, 2013 at 6:37 AM
Kraig, GREAT post! "The average household doesn't understand that to succeed financial, you need to live below your means." Plain, simple truth. And a truth most all families need to hear. Thanks, Kraig, for your blatantly honest post.
- Kraig @ Young Cheap Living says:February 16, 2013 at 2:54 PM
Hi Laurie, Thanks for the very encouraging words. I agree with you. It seems that so many families try to "game" the system and pull fast ones that will give them a leg up. What we all really need to do is put our head down, live WAY below our means and stick to it. Thanks for stopping by and have a great weekend!
- Kitkat30 says:February 17, 2013 at 5:43 PM
Yes, common sense ain't so common these days. We cut our cable a couple years ago $145 a month was what cable charged us, and we got netflicks instead for $7 a month. We coupon when we can. Get meat when it is discounted and pop it in the freezer, you'll save at least 30% off meat that way. We put away 15-20% of our income into savings now (varying depending on how good paycheques are) and live very comfortably (just me and hubby, no kids). I was pretty shocked recently when my best friend told me her and her live in bf only had $1000 in their savings and in debt up to their eyeballs because of buying a townhouse and things to put in it. I'll never understand why people live this way. Although, you do need to have little splurges once in a while or life just becomes very boring. No one should cut back to basics for years and years and just live, or you will have wasted your life for savings.
- ES says:May 4, 2013 at 12:32 PM
Don't forget the fancy cell phone plan! I think an average smart phone costs at least $1500 a year (including the phone). I know bare bones cell phone plans are still a decent monthly expense (at least $40) a month, but smartphones (for most) are still a non-necessity.
- John Moguche says:August 18, 2015 at 10:19 AM
I believe in saving to invest no matter how long it can take. Even Rome was not built in one day.
