Financial security and peace of mind are two goals nearly everyone puts on their list, but how can you actually achieve them? There are numerous tips, tricks, and strategies to build your wealth, but the foundational pillar is to save more than you spend. That is, to live within your means (or even better, below your means!)
Stretching your dollar every month is exhausting and it won’t get you where you want to go. You shouldn’t be constantly worrying about where your money is going every month, or every week. When you have a strategy in place that doesn’t max out your budget, it’s actually more freeing than restricting.
Living below your means is a sure-fire way to set you on the path to financial success. Let’s take a look at the top reasons why you should live below your means and why it isn’t as hard as it sounds.
Improve Your Cash Flow
Have you ever heard of, or even experienced, living paycheck to paycheck? Breaking that cycle starts by changing the way you handle money daily, a.k.a your cash flow.
It’s all about balance. Balance what’s coming in versus what’s going out, and what you’re saving versus what you’re spending. If you are spending too much, where can you cut back? Easy places to eliminate extra spending are:
Subscriptions like Netflix, Hulu, Spotify, BarkBox, etc.
Take out or dining out
Morning coffee from Starbucks, Dunkin Donuts, etc.
There are plenty of other areas to cut back on based on your specific situation. The goal when you are cutting back is to start taking intentional steps forward and shift your habits to better accommodate where you are and where you want to be. Sit down and make a list of what you can and cannot live without and go from there.
Lifestyle inflation can happen to anyone, no matter how much money you make. It’s easy to spend more than you anticipated or try to stretch your budget, but keep in mind there is only so much elasticity in your finances before they tear. Start the journey of improving your cash flow by gaining a better understanding of your finances and create a budget that fits your lifestyle comfortably.
Have More Control Over Your Debt
When you secure your cash-flow, you’ll be better able to make a debt-repayment plan that works for you.
Living above your means likely leads to inflated credit card bills or overdue loan balances. Live by the rule that you can only purchase things that you can pay for in full and avoid the minimum payment on credit cards at all costs. The average interest rate on a credit card is nearly 18% and no TV show, restaurant, or new gadget is worth that.
An easy way to stay out of debt is to start using cash versus credit cards. With cash, the transaction feels more personal — and science backs it up! Studies show that you will spend up to 83% more when using a credit card instead of cash or a debit card.
When you take control of your debt, you are in the driver's seat to financial success. You won't miss the feeling of a negative account balance or skyrocketing interest rates — we promise.
Adopt an Active Wealth-Building Strategy
Now that you aren’t stressing about making the minimum payments on your credit card, you can focus your attention on building wealth and securing your future.
Start investing in your retirement accounts, such as a 401k or Roth IRA. This is the best, and easiest, way to get started in investing. Even if you can only contribute 5% or less of your paycheck, it’ll be important down the road.
If you’re interested in other investment opportunities, you can also check out apps like Acorn which rounds up your purchases on linked debit or credit cards and invests the change in an exchange-traded fund. Your financial advisor will be able to point you in the right direction based on the amount you’re able to invest.
An active wealth-building strategy helps protect your financial future. The world is full of unknowns and what-ifs which is why establishing an emergency fund is vital. Start contributing what you can and aim to save 3-6 months’ worth of total expenses (rent, food, cell phone bill, etc.). This will help protect you and your family should anything unforeseen happen.
As you think of the future, consider a vacation fund, college tuition, retirement goals, and charitable giving, among other things. An active wealth-building strategy isn’t done overnight — it’s made up of small goals and strategies to set you up for a successful future.
Find Greater Confidence and Contentment with Your Money
Your money mindset has everything to do with the way you approach and handle money, but it can also easily slip into how you make other decisions in your personal life. When you spend more than you can handle, stress and anxiety inevitably begin to enter your life, leading to poor decision making. Be intentional and strategic with your spending.
Living below your means can provide you with confidence because you are taking control of your money and your lifestyle.
Set Yourself Up For Success Now and in the Future
Living below your means may not sound “fun” but adopting this lifestyle will drastically improve the quality of your life now and in the future. With this lifestyle, you gain confidence and clarity and can use your money wisely, saving, and investing for the future.
Living below your means doesn’t mean barely scraping by, rather it means being intentional with each dollar you have to make it work hard for you and your goals. Start now by reclaiming control over your spending and establishing healthy patterns that will set you up for a successful future. Our team at Pro Wealth can help you get there — start by giving us a call today.