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Living Below Your Means: What it Is and How to do it

Lifestyle does not always indicate how much money people have. Some spend a lot, constantly use credit cards, and have large houses – but no money.

Then there’s the second group. These people usually live in modest homes and appear to be like everyone else, but they have a high net worth.

This is an example of living below your means. Find out more about what this is, the pros and cons, and why you should give it a try.

What is Living Below Your Means?

Living below your means happens when you spend less money than you earn. You live right at your means if you spend everything you make, and you live above your means if you spend more money than you make.

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Living below your means will leave you with extra money at the end of the month, not right at zero or with debt.

Is it a Smart Idea to Live Below Your Means?

Yes, living below your means is a sign of financial maturity, and it has a lot of benefits. It can keep you from acquiring debt.

Staying out of debt will lead you to financial freedom. You don’t owe anyone money when you have no debt, and your bills are minimal. This is a great place to be.

Next, spending less money than you make each month can help you save and invest more. When you don’t spend your whole paycheck on bills and frivolous extras, you’ll have some leftover.

This is the time to put that money away in savings or add it to investments to make a profit.

A third reason to not spend all your money? You’ll be prepared for emergencies. When you save some cash each month, it adds up.

Then, if something unexpected occurs, you don’t have to worry. You can easily take care of some car trouble or a home maintenance problem through the money you’ve saved.

And last, living below your means helps reduce financial stress. You can relax when you have money saved and aren’t maxing out your credit cards.

You don’t have to worry about having enough money or be concerned that you’re overspending. This can be very helpful for your budget and money goals.

Warning Signs You’re Living Above Your Means

Are you concerned that you are overspending or living above your means? If you aren’t sure, there are ways to tell. Check out these signs.

1. You’re living paycheck to paycheck.

When you’re living above your means, you spend pretty much everything you make. All the money comes in, and all the money goes right back out.

If you feel frustrated by the low funds when you check your bank account, you might have a problem.

2. You pay minimum balances instead of paying in full.

You buy things on credit and only pay the minimums instead of paying them off as fast as possible. It might be because you lack the funds, or maybe you are spending the money on something unnecessary.

Either way, making minimum payments is a sure sign of living above your means.

3. You have no savings.

If you find that you have no money saved and are not setting aside any money from your paychecks, you may be living above your means. Not having money saved means that all of it is being spent elsewhere, leading to problems later on.

4. You’re receiving collection calls.

You find yourself dodging phone calls all day because you know it could be someone from collections.

You may not have the money or are worried about the amount of money asked for. But fearing your phone ringing is no way to live. It’s time to make a change.

Related: Is Debt Resolution the Same as Debt Settlement?

5. You’re worrying about how to pay your bills.

Even though your bills are not a surprise and cost about the same each month, you may be worried about paying them. If you do not make a budget, all your money could get spent before all the bills are paid.

6. You feel unprepared for any emergency.

You find yourself hoping that you will not encounter any unexpected costs because you don’t know how to pay for them. If this is happening, you should start saving some money for an emergency fund, and you can do this when you live below your means.

How to Live Below Your Means?

If you identify with any of the six situations above, you probably know it’s time to live below your means. But if you’re new to it, how does it work?

How can you begin to spend less than you make and achieve financial security? Read on.

1. Track your spending.

Start off by getting an understanding of where your money is even going. Track your spending by looking back at the previous month’s spending reports.

Check your bank account and notice the withdrawals. Is it mainly for bills or for non-essential things? 

Tell yourself the truth about how much money is typically spent each month on things you don’t need. It could be surprising how much cash is slipping through without you realizing it.


2. Create a budget.

Budgets can be very uncomplicated. You can easily make one, even if all you do is automatically take out money for savings to a separate account each month. 

For a straightforward budget, add up your expenses. Make sure the amount in your bank account will cover them.

Then put nearly all the rest into savings, except for maybe a few hundred dollars extra for “just in case” things that come up. And there it is – the simplest budget. 

There are lots of other ways to make a budget, too. One good way for beginners is through a free program like Empower. So use an app, write it out – do whatever budget planning method works for you.

3. Stay out of debt.

If you struggle with living above your means, it’s not the time to use credit cards. Just. Don’t. Do. It.

Stay out of debt by putting all of your credit cards away, out of sight, and paying off any balances that you have as quickly as possible. 

4. Don’t buy things you can’t afford.

When living below your means, don’t buy things you can’t afford. What does this mean?

It means that anything non-essential that can’t be purchased in full at checkout is off-limits. If you want to buy something that’s $100 out of your budget, it’s best to save up until you can buy it without credit. 

Before making a large purchase, ask yourself, do I really need this? Can I put off buying it until a later time? Will I still want this item tomorrow, or will I regret that I bought it?

5. Spend wisely.

Before spending, think about it. Impulse purchases will leave you with regret, so instead, spend wisely.

This means being intentional. Buy things that are needed, not just wanted.

Look for deals. And do your best to buy items that add actual value, not just something that looks good at the moment.

6. Know where your money goes.

Losing track of money is easy, and it can be spent without much attention. To avoid this, know what you spend your money on.

Know how much your bills cost and when you pay them, how much you want to save, and what is left over for spending.

7. Live in the cheapest place possible.

If you really want to live below your means, live somewhere very inexpensively. Housing costs are usually one of the most significant expenses in the budget, so cut back.

Live somewhere smaller or somewhere that costs less money, and see how much money you can save. You may need to get creative with house-hacking and room renting.

If you live in a large house, this might mean downsizing to something more affordable. If you rent, look for something that has just enough room for you and your family, instead of a lot of excess space. 

8. Lower your cost of living by cutting unnecessary spending.

Live frugally to practice living below your means. Cut out all spending that isn’t essential. Pay your bills and expenses.

Don’t buy anything that is non-essential or that you could do without. And then save all the rest of your money.

If you do this for a few months in a row, you will see an increased amount of savings, and you may find that you’ve completely changed your habit of living above your means.

Related: How to Save $5,000 in 3 Months

9. Automate your finances.

One of the best ways to live below your means is to make it automatic. Set up automatic bill pay and direct deposits for your paychecks.

Then schedule automatic savings transfers. Your bills will get paid, and you’ll save money without too much effort or thought. 

10. Have an emergency fund.

Having an emergency fund is going to save you a ton of anxiety. It will protect you if something happens that costs money.

Flat tire? Trip to the doctor? No problem! Your emergency fund will help you out.

Related: Emergency Fund vs Savings – Which do you need?

A surefire way to know that you are living below your means is by having this emergency fund at the ready. It’s extra cash you’ve saved up, proving that you aren’t spending all of your paychecks.

11. Increase your income sources.

A roundabout way to live below your means is by increasing your income. Ask for a pay raise, take on a second job, or start a side hustle.

This will give you more money, automatically giving you more cash to save without spending less. Just be sure you don’t start spending the excess because that misses the point and will leave you in the same situation. 

12. Save and use cash for large purchases.

Rather than putting large purchases on credit, or taking out loans, save up for them over time. Know the total cost of the item you want to buy, such as a television, a new phone, or a car.

Then put money aside every time you get paid, periodically building up your money so you can afford to pay cash for the item.

Related: Advantages and Disadvantages of Cash Budgeting

How Much Should I Live Below my Means?

This is a pretty individual choice, so no one can say for sure except you. It depends a lot on your circumstances and goals.

Suppose you are saving up for something expensive or need to put a significant amount into investments. In that case, you might choose to save all your income that doesn’t go to bills. 

If you just want to live below your means but aren’t pursuing a particular and significant goal, you might try to live a percentage below your means.

An excellent place to start is to live 15% below your means. If you make $5000 per month, you can save approximately $750 a month, and so on. 

What Are the Cons of Living Below Your Means?

It isn’t all that easy to begin spending less money. While the benefits far outweigh the negatives, they do still exist.

First, it can mean having fewer luxuries. Things like grocery delivery or eating out might no longer be part of your life, and you may lose some conveniences.

Living below your means can also mean fewer opportunities, at least for a while. When saving money, it may feel like everyone else is doing great things, and you are sitting at home.

Just know that your savings will increase over time, and you’ll be able to do some of those fun things again. 

Most cons will reduce or disappear given enough time. This is due to you saving more and having more financial means.

Living below your means can help you reduce your stress and achieve your financial goals. 

Living below your means may not be glamorous, but it can reduce some severe money stress over time. It can also help you achieve financial goals, hit savings targets, and buy things with cash instead of with credit.

It takes time to become good at saving money and spending less of it. But once you do, it can help you so much, that you’ll wonder why you haven’t always done things this way. Live below your means and see how easy finance, budgeting, and saving become.

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