17 simple rules to live within your means
Author: Maria Smith
Whether you are trying to save money, increase cash flow or break the paycheque to paycheque rut, learning to live below your means can be a financial game-changer. Here are 17 simple rules to help you live within your means. These tips are simple but may not be easy. Try not to apply them all at once. Take your time and implement small changes for the most significant results.
Know your income
Knowing your net take-home pay will help determine what your spending limits are. Without knowing how much you earn every month, how can you live within your means?
To track your income remember to add in all payment sources, including but not limited to regular employment, freelance work, and side hustles.
Due to the unpredictable nature of cash received from selling used items (online or in a garage sale, for example), you may choose not to include this income at this step. Make a plan to put any unpredictable income towards your money goals, such as retirement savings and credit card debt repayment.
Track your living expenses
Once you know your income, the next step is tracking your living expenses. It may surprise you how much you are spending on specific categories.
Tracking your spending gives you an excellent place to start to make changes. It is a good idea to track your expenses for a few months as some costs may not come up every month.
To track your expenses, you can go forward and start saving all your receipts for the next 3 months. Or, if you are a card spender (either debit or credit card), you can go back and use your bank and credit card statements to track your purchases for the past few months.
Create a money plan
Everyone should have a plan for their money. This can be a budget (of which there are many types) or a general guideline.
A comprehensive plan includes all sources of income, savings, debt repayment, and accountability when it comes to living expenses and any other purchases. If this is your first time creating a plan, you may consider using a budget (or budgeting app) for a few months to get a better handle on your money.
Spend less than you make
One of the best ways to live below your means is to spend less than you make. If you've gone through and calculated both your earnings and expenses, this rule is simple. But that doesn't mean it's easy.
Look for simple ways to decrease your expenses, or brainstorm ways to increase your income. Start with the steps that feel easy, and don't try to do everything all at once.
Increase your income
There are only so many living expenses that you can cut, but your earning potential may be limitless (within reason, of course). Increasing your income can have a much more significant long-term effect than trying to deprive yourself by eliminating spending that brings you value.
Here are some ideas on how you can potentially increase your income:
- Ask for (or negotiate) a raise or promotion
- Look for higher-paying employment opportunities in your industry
- Freelance (do you have a skill that is in demand?)
- Sell unwanted items
- Take on a side hustle
Build an emergency fund
Building an emergency fund can create a buffer should an unexpected expense come up. The benefit of this buffer is that you will not have to go into debt to pay for the unexpected cost.
If you have an emergency fund, it is easier to avoid debt regardless of surprise expenses. Just make sure that your emergency fund is enough to cover an unexpected cost or drop in earnings.
Use sinking funds and save up for purchases
Sinking funds can be a great way to save up for large purchases. Break down the cost into smaller chunks and start saving early for it.
By building sinking funds into your financial plan or budget, you will be able to afford large purchases without taking on debt. Avoiding debt will help you to live below your means.
Don't rely on credit cards
Credit cards can be a great financial tool, but only if you pay them off in full every month. If you don't have the funds to pay for the expense, don't put it on your credit card. Credit cards are not a source of income.
Carrying a balance on your credit cards will lead to interest charges that can erode even the best financial plan or budget. It's okay to use credit cards. Just make sure to do so responsibly.
Decrease your living expenses
After you have spent some time tracking your living expenses, chances are you have found some easy payments to eliminate. Are you still paying for a subscription that you never use? Have you been charged a bank fee that you can avoid? What other bills can you decrease?
There are often many small expenses that can be decreased or eliminated without overly affecting your lifestyle. Look to cut these expenses first.
Automate your savings
Automating your savings and paying yourself first ensures that you have money to save. It is also a psychological money trick that can help you to spend less.
If you pay yourself first, your chequing account will only show how much is left. You are more likely only to spend that amount. But if you wait until month's end to save what's left, you're more likely to run out of money to transfer to your savings account.
Make saving money (even small amounts) a no-brainer by automating the process.
Don't compare yourself to others
Have you heard of "keeping up with the Joneses"? Well, chances are the Joneses have a lot of debt to fund their extravagant lifestyle. Things aren't always as they seem on the surface (or on social media).
Don't waste your time and money trying to compare yourself to others. You will be much happier in the long run if you can align your spending with your values. Not only will you be able to live within your means, but you will also be spending money on things that bring you joy, not on what other people say you should spend your money on.
Find appropriate housing
Housing is one of the largest expenses in most budgets. The lower you can get your accommodation cost, the more money you can keep in your pocket (or the less money you need).
Appropriate housing may be choosing to rent instead of buying a home. It can also mean not buying or renting too much house. Do you really need all those extra rooms? Larger homes also come with higher utility and insurance costs whether you are renting or are an owner.
Embrace second-hand items
Previously owned (or second-hand) items are increasing in popularity. Close to 83% of Canadians have stated that they have shopped at a thrift store. Embracing second-hand items will not only save you money but will also help the environment. I have bought lots of second-hand clothing that still has the tag on it. Imagine throwing something into the landfill that is still essentially brand new.
And when it comes to vehicles, buying second-hand can save you the significant depreciation that occurs as soon as you drive a new car off the lot. Like anything, you may have to shop around a bit to find quality items. But the extra effort is usually worth it.
Negotiate with your service providers
Service providers (internet, cable, phone service, insurance, credit card company, student loans) often have negotiable rates. By setting an annual reminder to review and negotiate these fees, you can save a lot of money over time.
It may take you a few hours of your time to negotiate with all your service providers, but it can prove to be well worth your time.
Here are some tips for negotiating a better rate:
- Ask to speak to someone in the loyalty department
- Know competitors rates
- Ask if they offer any special discounts (seniors, students, etc.)
- Always be friendly
- Don't be afraid to call back and speak to someone else
Create a gap
Creating a gap between wanting to purchase something and making the purchase can save money and reduce impulse buying.
The gap can be as short as a few hours or as long as a few days. If you still want the item after the wait, you will probably be more comfortable purchasing it. And the longer the gap, the more time you give yourself to save up for the item – another way to live within your means.
Save money wherever you can
There are many ways you can save money without compromising your lifestyle or feeling deprived.
Can you pack your lunch at home instead of eating out every day? Is there an opportunity to carpool to work or work from home part-time? These are just two of the many ways you can cut expenses and save money.
Align your spending with your values
Most of the above rules for living within your means relate to aligning your spending with your values. Sure, there will be times when you will have to cut some expenses or may not be able to afford certain things.
But aligning your spending with your values will lead to you not feeling deprived. Nowhere on this list does it talk about never spending money. You may just have to spend a bit smarter.
There will always be trade-offs. Maybe you want to go on a lavish vacation but are okay driving your older vehicle for a few more years. Or perhaps you decide to buy that new summer wardrobe second-hand to help you save a bit of money.
Taking the time to really sit down and decide where you want your money to go and then aligning your spending with those values can make you happier overall. And will also help save you money, prepare for the future and decrease stress levels of not living below your means.