If you were looking for the benefits of living below your means, then you’re already on the right track. Underspending is SO important for your finances, and here you’ll understand exactly why!
Very often the words “living below” have negative connotations. Common examples of society are living below the poverty line, living below the average income level, living in below-average accommodation. The word “below” evokes feelings of failure, lowness, and general unpleasantness.
The subject we’re introducing today, however, is that of ‘‘living below your means’’, and hopefully you’ll get to see the benefits it entails. Living under your means simply means that you won’t spend more than what you earn; in other words, you don’t spend money that you don’t have.
While it may not sound very appealing to cut out those little luxuries you got now and then with your credit card, there are undeniable benefits of living below your means, and we’ll be exploring them here.
1. No Debt
First and foremost, living below one’s means signifies that you won’t encounter any kind of negative debt. You can reserve your financial resources to pay off “positive debts” like a mortgage, student loans, or a business loan. All payments that you are making, including your debt payments, will be ones that either sustain or enhance your life, rather than drain from it with no reward.
Debt is an incredibly stressful and straining experience (see benefit 5), and it can even damage your family and relationships. Partners or spouses hiding debt from one another is a big driving force behind ill-feeling, and even separation and divorce. Living a life free of debt is a more comfortable one in which the money you have and use is all your own.
2. A Steadily Increasing Savings Pot
By definition, living below your means results in you having money left over at the end of each month. This money can be channeled directly into a savings account, a mutual fund (see benefit 3), an emergency fund (see benefit 7), or toward some new project that excites you.
A good idea is to first deduct money for savings from your initial income, and then calculate your “means” from the deducted amount, so you ensure your savings every month.
For instance, if your income is $4,000, then you could take 20 percent of that, $800, and put it into your savings account, investments, or others, and then count your “means” each month as $3,200.
3. Money to Invest
The gap between what you spend and your actual income is money that you can put into various pots and schemes that grow over time and eventually become money that works for you and provides passive income through interests, dividends, and other rewards. Not all investments require a lump sum of $50,000 or more like you might see on shows like Shark Tank.
Many schemes allow you to input just a few hundred dollars each month over a long period of time. Once matured, it can be left to gather compound interest and turn into something really special by the time you’re in your 50s or 60s. You only get this kind of money to spend each month when you can safely live below your means.
4. Long-Term Financial Security
When you continuously live within your means, you steadily build financial security for yourself and your family. At first, it’s just everyday benefits like always being able to pay your mortgage, utilities, grocery bills, and other expenses.
As the years progress and you continue to live this way, however, it becomes a pile of cash that pays for the big long-term financial goals, like kids’ college tuition or a new car. Soon you discover that your financial situation just gets better and better and you are “set up for life.”
This is unachievable when you live beyond your means because you would always be spending more than what you have and getting into debt.
5. Reduced Stress
So much stress in modern life comes from money worries and bad financial situations. It can turn into a vicious cycle that hinders future financial health. For instance, your credit card debt builds up, and you increasingly lose hope of being able to pay it off before the end of the year, and then you’ll pile on more debt with holiday expenses, and then face a new debt mountain next year.
The debt starts to snowball, and your worry grows. It’s keeping you up at night. A lack of sleep affects your performance at work, which results in you being passed over for promotion. That raise could have helped get you out of debt, but now it’s gone and you’ll struggle to gain back the respect and admiration of your superiors…
Stories like this are no joke, and no exaggeration. Debt is crushing, and it will spill over into other areas of your life. Live below your means but within your needs, and avoid this fate altogether.
6. Saying “No” to Keeping Up with the Joneses
When you are committed to the idea of always living below your means, you can more easily give up on the more financially damaging notion of “keeping up with the Joneses”.
Those who play such games with their friends, siblings, and neighbors are the ones who end up living beyond their means and thus in financial difficulties.
Buying a new car just because Mr. Jones across the street gets one is not doing you any good, even if it doesn’t seem that way at first. It also stops you from spending $100 on new highlights every time Mrs. Jones gets them.
Focusing on the goal of spending only what you have leads you to a better financial situation that, in the future, could actually buy you all those things you’re now willing to get into debt to have.
7. Ready for Rainy Days
Living below your means to save money can help you build an emergency fund that can pay for those sudden unexpected life costs that you can’t simply dodge and are very expensive. For example, vet fees for your dog, a set of new tires on your car, a broken-down fridge that you need to replace…the list goes on.
When you’ve always lived below your means, you’ll have a steady flow of money going into that emergency fund, and you can meet those expenses with readiness and without fear. There’ll be no need to accrue any debt, nor any need to ask other family members for help.
8. Live an Uncluttered Life
Another great benefit of focusing on living below your means is that you don’t end up with a house full of junk that you don’t need. How many families splurge on appliances, kitchen gadgets, party paraphernalia that they may use once but then just ends up in a cupboard gathering dust?
Being committed to your goal frees you from this fate because it’s exactly that kind of impulse buying that you don’t engage in. Check out this other post if you’re wondering how to stop buying stuff.
Keeping your financial head below the parapet of where your means finish is perhaps the best way to enjoy a life free from stress, envy, and debt. Living even a handful of months beyond your means can spell years of financial woes as you try to dig your way out of debt, or suffer financial losses as you are forced to sell assets you didn’t need like that fancy car.
It’s not exactly a glamorous way to live in the short term, but it provides a financial future in which you can live much more comfortably and as you desire in the future.
It’s also pretty easy to do – here are a few good tips for how to live below your means. It’s really just about putting off immediate desires to enjoy double the reward later on. It’s not just good for your bank balance, but also builds character and is good for your soul, too.
Benefits of Living Below Your Means FAQ
Living below your means allows you to be in charge of your financial life, and eventually achieve financial freedom.
Three benefits of living within your means are:
• Paying off debt
• Having some extra money for investment or an emergency fund
•Reducing money-induced stress
Living below your income means that, by not spending above your means you won’t be incurring in debt, either by taking loans or using credit cards. If you live below your means, not only will you be able to pay for everything and avoid debt, you’ll also get some extra money to spare to build your financial future.