7 Tips to Live Below Your Means | Capital One (2024)

October 12, 2023 |6 min read

    In simple terms, to live below or within your means is to spend less money than you make each month. Sticking to this personal finance concept can help you manage your expenses and improve your financial well-being.

    Learn more about how some simple steps can help you live below your means and guide your money management techniques.

    Key takeaways

    • Living below your means can help you improve your financial health and prioritize goals like saving and investing.
    • You can take steps to live below your means, like budgeting and finding ways to reduce spending.
    • Finding ways to pay down debt can help you save on interest charges so you can keep more money in your wallet.
    • Evaluating your current financial habits and being conscious of any changes to your budget can help you stay on track.

    How to live below your means

    Like anything, learning to live below your means can take time and practice. But if you’re consistently spending less than you earn, you could boost your financial health.

    These seven tips may be able to help.

    1. Understand your current financial habits

    Not sure how to start spending less? First, take some time to understand your financial habits.

    You can use statements from your bank, debit card or credit card to find patterns in your spending. For example, you may notice that you order a lot of takeout. Being aware of your existing habits can help you build better ones, like setting aside time to meal plan or buy groceries each week.

    2. Create an effective budget and stick to it

    Once you understand how much you earn and spend, a budget can help provide greater control over your finances.

    Budgeting doesn’t have to be a daunting task. Here are some tips for building a budget:

    • Determine your income. Income sources can vary. Be sure to consider all potential sources, including a paycheck from a full-time job, earnings from a small business or side hustle, alimony or child support payments, and passive income.
    • Identify your monthly expenses. Use receipts or statements to track your monthly expenses. It might help to identify fixed and variable expenses to show which expenses are mostly constant and which can change from month to month. This could help you see where your money is going and figure out areas where you may be able to cut back.
    • Choose a budgeting style that works for you. Once you’ve determined how much you make and how much you spend, it might help to find a budgeting style that works for you. Some common options include the 50-30-20 approach, zero-based budgeting or the envelope method. The Consumer Financial Protection Bureau (CFPB) also offers a free budgeting worksheet that might help you track and manage your spending.

    3. Look for ways to reduce spending

    Once you have a budget, you can find ways to reduce expenses and build savings. The CFPB recommends setting a weekly spending limit, which can help eliminate small purchases that add up throughout the month.

    Some other ways to reduce spending include paying off credit card statement balances each month to avoid interest and keeping an eye on recurring charges like subscriptions or memberships. If you’re not using them, consider canceling to save money.

    4. Set financial goals for future success

    Take some time to identify your financial goals, and let them serve as motivation to stay on top of your spending.

    You could start with a long-term goal, like starting a business, buying a house or retiring early. And then use short-term goals as a way to work toward it. Some common short-term goals might include saving a certain amount of money over the next six months or paying off a debt by the end of the year.

    No matter what you hope to achieve, thinking about your long-term goals and how your finances play a part in them is an important step in building your financial well-being.

    5. Save for emergencies or major purchases

    An emergency fund is a cash reserve that can provide a helpful buffer if you’re faced with unexpected changes in your financial situation. You can use it for things like unplanned repairs, unbudgeted payments or loss of income. As the CFPB explains, even putting aside a small amount each month might help you tackle the unexpected.

    7 Tips to Live Below Your Means | Capital One (1)

    6. Pay down debt

    Paying down debt on time each month can help you avoid spending more than you need to on things like interest and late fees. This helps you keep more money in your pocket that you can save or use to pay off other bills.

    It can be a balancing act to save money while paying off debt, but an effective budget and some financial planning can help you stay on track.

    7. Stay aware of lifestyle creep

    If you pay off a debt or increase your income, you may be tempted to spend the extra money on things you don’t exactly need. This is called lifestyle inflation or lifestyle creep, and it can make it more difficult to reach your financial goals.

    Budgets are meant to be flexible. So if you find yourself with extra cash, don’t be afraid to revisit yours and make changes. If you’re thinking of splurging in celebration, consider making adjustments elsewhere. And think about how major purchases or new debt might affect your long-term finances.

    Living below your means in a nutshell

    To live within or below your means is achievable. By examining your spending habits, creating a proper budget and planning for the future, you might take better control of your finances and work toward a state of financial well-being.

    Ready to build more healthy financial habits? Learn more money management tips to establish a solid financial foundation.

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    7 Tips to Live Below Your Means | Capital One (2024)

    FAQs

    7 Tips to Live Below Your Means | Capital One? ›

    What Does 'Living Below Your Means' Mean? If you live below your means, you get by on less money than you earn every month. For example: If your household income is, say, $40,000, but you make ends meet by spending $5,000 less than that amount, you're left with money to save or invest for important goals.

    What is an example of living below your means? ›

    What Does 'Living Below Your Means' Mean? If you live below your means, you get by on less money than you earn every month. For example: If your household income is, say, $40,000, but you make ends meet by spending $5,000 less than that amount, you're left with money to save or invest for important goals.

    How do you know if you're living below your means? ›

    Living below your means is when you spend less than what you make. In other words, you have money left over at the end of the month.

    Is living below your means worth it? ›

    Living below your means allows you to save money, steer clear of debt and establish a safety net for unforeseen expenses. To live below your means is to be aware of how much money you exactly make and ensure your spending never exceeds that.

    What is the 50/30/20 rule? ›

    The rule is to split your after-tax income into three categories of spending: 50% on needs, 30% on wants, and 20% on savings. 1. This intuitive and straightforward rule can help you draw up a reasonable budget that you can stick to over time in order to meet your financial goals.

    How to live cheap and below your means? ›

    12 Tips on how to live below your means
    1. Create a budget. ...
    2. Track your spending habits. ...
    3. Eliminate unnecessary expenses. ...
    4. Set financial goals. ...
    5. Reduce outstanding debt. ...
    6. Save for an emergency fund. ...
    7. Decrease credit card usage. ...
    8. Negotiate rates and bills.
    Feb 27, 2024

    How do you live within your means? ›

    Living within your means means managing your individualized finances and personal expenses in a way that aligns with your income and available resources. It involves spending money thoughtfully and wisely, while being mindful of your financial goals, as well as your limits.

    What type of debt should be paid off first? ›

    Prioritizing debt by interest rate.

    This repayment strategy, sometimes called the avalanche method, prioritizes your debts from the highest interest rate to the lowest. First, you'll pay off your balance with the highest interest rate, followed by your next-highest interest rate and so on.

    What is an example of someone living beyond their means? ›

    It's important to notice the warning signs if you find yourself living beyond your means and take action. These include high credit card balances, rising bills, saving little to nothing of your income, a low credit score, and spending a big chunk of your income on housing.

    Which debt should I clear first? ›

    With the debt avalanche method, you order your debts by interest rate, with the highest interest rate first. You pay minimum payments on everything while attacking the debt with the highest interest rate.

    How to save money if you are poor? ›

    Jaspreet Singh: 10 Ways To Save Money When You're Broke
    1. Quit Using Credit Cards. ...
    2. Cook More at Home. ...
    3. Plan Your Meals. ...
    4. Get Smarter About Free Stuff. ...
    5. Switch Your Provider. ...
    6. Visit Your Library. ...
    7. Look Into Refinancing Your Loans. ...
    8. See Which Perks You're Eligible For.
    Oct 14, 2023

    Who said live below your means? ›

    Whenever Robert Kiyosaki wanted something nice, his poor dad, his natural father, said “We can't afford that.” He would even go so far as to say “The most important lesson I can teach you is living below your means.” The funny thing is that by many standards, poor dad was well off.

    What is your biggest struggle with your finances? ›

    Here is a list of the most common financial problems people may face:
    • Lack of income/job loss.
    • Unexpected expenses.
    • Too much debt.
    • Need for financial independence.
    • Overspending or lack of budget.
    • Bad credit.
    • Lack of savings.

    Is $4000 a good savings? ›

    Ready to talk to an expert? Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.

    How to live on 2000 a month? ›

    Housing and Utilities

    Housing is likely your biggest expense, so downsize or relocate somewhere with a lower cost of living. Opt for a small space or rental apartment rather than homeownership. Shoot for $700 or less in rent/mortgage. Utilities should run you no more than $200 in a small space if you conserve energy.

    How much money should you have left over after bills? ›

    As a result, it's recommended to have at least 20 percent of your income left after paying bills, which will allow you to save for a comfortable retirement. If your employer offers matching 401(k) contributions, take advantage so you can maximize your investment dollars.

    What does it mean to live life according to your means? ›

    What does it mean to live within your means? If you're living within your means, you have enough money to cover all expenses. By adopting a personal finance plan and sticking to it, you can know your basic needs are covered along with other financial priorities.

    What is considered living above your means? ›

    Simply put, ”living above your means” means that you are spending more money than you are earning. People are able to do this by relying on credit cards, loans, and pior savings to cover their expenses. However, the process is not sustainable, and eventually overspending is likely to catch up to you.

    What does it mean to live beyond your means? ›

    Living beyond your means implies that you spend more money than you can afford. In most cases, this means that you spend more than you earn. You may be spending too much on housing, food, entertainment, and other things without being able to save for a rainy day. If you find yourself in this situation, don't panic.

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