We only have one life, and there are so many things to experience and enjoy. It is natural to want to make the most of our time on earth. We enjoy spending money on new experiences, such as dining at fancy restaurants, going on vacations, staying in luxurious hotels, and enjoying the finer things in life. However, it is important to remember that we have limited resources and need to be mindful of our financial priorities to make the most of our opportunities. To achieve this it is often advised that you “live below your means”.
What does “living below your means” mean:
It is a common misconception that living below your means means sacrificing all the things you enjoy and constantly making compromises. However, this is not the case. Living below your means actually means being mindful of your financial priorities and making sure that you are taking care of your necessities and saving for the long term before indulging in luxuries or spending on your wants. This does not mean that you should never spend money on the things you enjoy, but rather that you should make sure that you are taking care of your financial responsibilities and planning for the future before splurging on non-essential items. It is important to remember that living below your means is about finding a balance and making conscious financial decisions, rather than constantly making sacrifices and denying yourself the things you enjoy.
Why “live below your means”?
Living below your means will help you create a financial cushion, build financial stability and have the freedom to make choices about your finances. By spending less money than you earn or have available to you, you can create a financial cushion that can help you weather financial storms or unexpected expenses. Living below your means can also help you build financial stability by allowing you to save and invest for the future, rather than relying on credit or debt to make ends meet. Additionally, living below your means can give you more control over your finances and the freedom to make choices about your spending and saving habits, rather than being controlled by your financial obligations.
How to “live below your means”?
Here are a few strategies that can help you live below your means without feeling like you're sacrificing too much:
Setting a budget and sticking to it: This involves determining how much you can realistically afford to spend each month on necessities and discretionary expenses and then tracking your spending to ensure you stay within that budget.
Avoiding unnecessary expenses: By keeping track of how much you are spending, you can identify any unnecessary or excessive expenses that you can reduce or eliminate. It is also helpful to categorise your expenses, such as necessities (e.g., rent, groceries), wants (e.g., dining out, entertainment), and savings (e.g., retirement contributions, emergency fund). This can help you see where your money is going and identify areas where you may be able to cut back.
Cutting costs: There are often ways to save money on everyday expenses, such as by shopping around for the best deals, negotiating lower prices, or cutting out unnecessary expenses. By being proactive and finding ways to reduce expenses, you can provide for your needs while also creating a surplus of money that can be used to pay off debts or increase investments.
Increasing your income: If you are struggling to live below your means even after cutting your expenses to the bare minimum, you may need to consider ways to increase your income, such as acquiring a new skill that will enable you to take on more responsibility at work and therefore increase your salary, taking on additional work, or starting a side hustle.
Paying off debt: Prioritise paying off your debt at the earliest, this will not only reduce your interest cost but also enable you to save more in the future. If you have any credit card debt, it is important to prioritise paying it off first. Credit card companies often charge high-interest rates, sometimes as much as 3.6% per month on the unpaid balance. This makes credit card debt expensive and difficult to manage. Therefore, it is a good idea to focus on paying off your credit card debt before paying off other types of debt.
To summarise it can be said that living below your means means being mindful of your spending habits and making sure that you are not overspending relative to your income. This does not mean that you should never spend money on luxuries or wants, but rather that you should prioritise your goals, save for future expenses, and spend money wisely and within your means. In other words, you should be able to balance your desire for new experiences with the need to save for the future and manage your finances responsibly. By prioritising your goals and being mindful of your spending, you can make the most of your limited income and still enjoy the things you love.
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