There’s no “get rich quick” scheme that I’ve run across. There’s no magical cryptocurrency. And there’s no secret “hack” to your finances that is only available to the wealthy. If you consistently live below your means, you will win with your money. If you don’t, it really doesn’t matter how much money you earn—you will always feel broke.
For example, Person A might earn $200,000 per year—drive a luxury SUV—go on big vacations—upgrade their phone every year—and eat out frequently. By the end of the year, however, Person A has spent $250,000! They are now $50,000 farther in debt.
In comparison, Person B earns $100,000 per year—lives comfortably but doesn’t overspend on housing—doesn’t increase their lifestyle as they earn more—and has put away $50,000 at year’s end after paying for all of their expenses.
There’s no advertisement telling you to live below your means; no ads on Instagram saying, “You might want to keep that car for an additional 5 years” and there’s no billboards saying, “Be smart and have a great vacation without a luxury upgrade.”
The reason there’s no promotion of living below your means is because there are entire industries built around taking advantage of you because you are overextending yourself with your purchases.
If an industry convinces you that:
- You must have the latest device
- You deserve a larger vehicle
- You should constantly be upgrading your standard of living in relation to your income
If you live below your means, it creates power for you because you will be in the minority and swimming against the current of the culture.
In simple terms, when your income is more than your expenditures, you have gaps, and with those gaps, you can build wealth. Your gaps create opportunities for savings, investments, and peace of mind.
To Achieve this goal requires a plan and not just a vague “I need to save more.” There needs to be an actual system.
First of each month, sit down and write out how you plan to spend the money (you will use an application, spreadsheet, or note pad – your options are limitless). Write down your income, fixed expenses (rent, car payment, and insurance), flexible spending (restaurants, clothing, and entertainment), and most importantly, allocate money toward future goals (debt payment, investment, saving for a home and retirement) – it does not matter how much – what is important is to be consistent.
Now, let’s look at how Financially Stable individuals differ from Financially Stressed individuals: Emergency Funds. Life will present to you many surprises (i.e., car repairs; job loss; medical bills; broken appliances). When you don’t set aside cash for these expenses, it requires you to borrow money, thus developing a cycle that is very difficult to break.
Your last few months of expenses
Your average monthly spending
Multiply your average monthly spending by 3 (if you are a renter) or 6 (if you are a homeowner)
Your safety cushion is equal to that sum.
Your safety cushion is not very glamorous or likely to get you many likes on social media, but it will help you get the sleep you want. A moment of pause is appropriate for large purchases as well; housing, vehicles and education can be large commitments for years.
Are you really locked into a one-year lease? $3,000 x 12 months = $36,000; did you think about that purchase enough? Or was it simply “manageable” at the time?
Wait 24 hours before making any purchase that is greater than 50% of your average monthly expenses. The impulse will fade away and this 24-hour pause could save thousands of your hard-earned dollars.
Earning $60,000 annually allows for you to build your wealth. Earning $300,000 annually could find you buried under payments.
The key is not how much money you make. It’s about how disciplined are you with your money.
Living below your means is about exercising self-control, not about depriving yourself of things you want. It’s about valuing future freedom more than immediate gratification.
It’s about keeping more than you spend, creating margin in your daily life, and buying yourself options or possibilities for your future self.
This is the key to obtaining financial freedom, but it won’t grab your attention or excite you; rather, it will provide you with positive results. After you understand this concept, limited money will no longer control you — rather, limited money will begin to work on your behalf.
