In August 2016 I made the last payment on my student loan debt!!!! Over $90,000 paid off in 6 years. How did I do it?? Ok, are you ready for the answer…I learned to live below my means. Not within my means, but below my means. In order to get out of debt and build future wealth, you must learn to live below your means.
Disappointed by that answer? Believe me, others have been. But it is the honest truth. For me, there was no secret formula, no lottery win, or inheritance. It might not be exciting but it worked.
In order to achieve financial freedom you must master this concept. It is quite normal to living at or even above our means. This is how we get into credit card debt, by financing our way to the American Dream and spending money we haven’t yet earned. It is unusual to live below your means but it can be accomplished, with planning and intentionality.
Practical ways to live below your means:
This is obviously easier said than done, especially if you’re accustomed to spending every dollar you bring home. But, can you imagine living off 80% of your salary and saving the other 20%? What impact would that have on your finances? It might sound unrealistic but it can be done. There are people living off of just 50% of their earnings. And no, they are not millionaires. Just regular everyday folks.
The next time you earn a raise or a bonus, pretend like you didn’t. Instead of spending the new increase, save it, or accelerate your debt payoff plan.
Spending more than 35% of your income on housing? It might be time to move. If you are overspending on fixed expenses it will be hard to get ahead and harder to save. Consider a smaller apartment or house and a smaller, more fuel-efficient vehicle.
If there is no fat left to trim in your budget then it’s time to earn more money. Pick up overtime or get a part-time job or side hustle. A side hustle is the secret weapon in your financial arsenal. But continue to live at the same standard of living. Don’t fall into the trap of spending more because you earn more.
How much of your income do you currently save? The average American saves just under 6% of his/her income annually. A safer savings rate would be 10% and then try to increase incrementally by 1% whenever possible.
If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.
What can you do to increase your savings rate?
Do you plan to save money while paying off debt or wait until you’re debt-free?