How to live within your means is the foundation for all financial success. Asking this question means that you are asking the best question in order to take control of your finances.
I was $105,000 in negative net worth. Net worth is a fancy term for what happens if I sold everything I owned and paid off my debts. How much would I have left? Well, in 2013, I would still owe over $105,000.
I started to figure out what it meant to live within your means. At the end of 2022, I would have almost $700k depending on how the stock market and housing market are doing.
These ideas are based on my personal experience and opinion and should not be considered professional financial investment advice. Furthermore, the ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
How to live within your means
What does it mean to live within your means? Well, it means that you should have more money coming in than you have going out. It means that you aren’t going into debt every month.
It also means that you have money to put into emergency savings, long-term savings and eventually investing in your retirement and future. Trust me, your future self will thank you if you live within your means today and not someday.
Setting a Budget
Setting a budget is essential for anyone trying to live within their means and build financial stability. Whether you are just starting out in life or looking to make changes, setting a budget can help you achieve financial success.
Creating a budgeting plan requires some initial effort but it can be beneficial in the long run. A good place to begin is by writing down your income sources and all of your expenses. This will allow you to see exactly how much money you have coming in and where it is being spent each month. Once this information is collected, use it to set reasonable limits on spending that fit into your goals and lifestyle. Decide what items are most important and allocate funds accordingly while eliminating unnecessary purchases as much as possible.
Frankly, hate setting a budget but you will need to do this if your finances are out of control.
Debt Payoff and Budget
If you are stuck in thousands of dollars of debt like I used to be (80k in student loans, more than 10k in credit cards and two car payments, etc.). This can help you.
Learn how to pay off debt – set your money goals and get a plan to get your net worth positive.
We track your income, debt, savings, and investments so that you can reduce debt and grow the other three.
This is where you will want to use the snowball method of debt reduction. In a nutshell, write out all of the credit cards, car loans, student loans, personal loans, hospital bills, and other loans that you may have on a sheet of paper. Then order them from the lowest balance to the highest. Don’t put your home (if you have one) on here. This list will be depressing enough without an extra several hundred thousand dollars on it.
Then start to pay off just the minimum payments on everything but the top item. Throw as much money as you can on that until it is paid off. Then throw as much money as you can at the next bill.
Now with the skyrocketing interest rates (Thanks Federal Reserve!) in 2022 and 2023, you may have credit cards with over 30% interest which is just crazy. No way you will be able to pay those off faster, so here is what you do.
If, and this is a big IF, you can promise me that you won’t pay down a bunch of credit cards and then run them up again then I will give you this tip.
Do you promise?
Ok I don’t think you did 😉 but I will tell you this anyway. I got a personal loan years ago at like 9% interest to pay off credit cards at 28% interest and saved money. I didn’t run that credit card balance up. I took it out of my wallet and put it in a junk box that I found about 8 years later with an expired credit card in it.
Then I worked to pay off that personal loan early so I could pay even less interest. So if you think this could work for you here is a link to a place that may help get you a personal loan. It will say I want to give you $300 so read how that works and if it feels like a good fit and you won’t just go to Las Vegas on your $0 balance credit cards then click the link.
This one is easier said than done right?
Just increase my income, why didn’t I think of that – thanks, Dwight….
Well, I am going to let you know that there is a difference between having a spending problem vs an income problem.
A spending problem can be solved by cutting cable or 10 of your 15 subscription services.
An earning problem is what I think most Americans have especially now with record worldwide inflation and potentially a recession coming. It wouldn’t matter how much you cut out of your budget if your housing cost has gone up 25% or more. Food went up by 10% or more. Gas has fluctuated and at the time of this writing it is down from over a year ago but it was pushing $5 a gallon in the summer where I lived.
Have you tried going out to a restaurant lately? I think the prices are up 25% as well. Everyone is getting squeezed.
So here are my two options, but neither is fast money:
1) Grab my #1 strategy for making more money no matter what field you are in. It is the most-read article on my site right now.
2) Start your own side business. I have a lot of ideas in this post on how to get started with that. No driving for door dash isn’t one of them. I am more of a fan of disconnecting your time from your paycheck. If you would like to learn the fastest way to blog I would recommend the group that taught me here.
You need to get an emergency fund set up as fast as possible.
Why an emergency fund? I don’t know about you but for years it felt like anytime I got a bonus or an extra paycheck then something would break for about the same amount.
For years I went through this until I made it a priority to put $1,000 away in an emergency fund (known as my savings account) that I would only touch if I didn’t have any other choice. Then I would work hard to put that money back into place as fast as possible.
Once I did this I was able to start paying down my credit card debts. After that, I was able to start to double and triple pay down my student loans until they were all paid off. Knowing there is a cash cushion allows you to sleep better at night. It will also help you to avoid bank fees if your bank will automatically pulls money out of savings first.
I have budget and savings worksheets here if that is of interest to you.
Making Smart Decisions
I want you to make a rule about when you will wait 24 – 48 hours before making a purchase. So you are walking through a store or on Amazon shopping for stuff you will be tempted because there are people making millions of dollars trying to sell you things. So they are good at their jobs. It is why the milk is in the farthest corner of the store from the front door. It is why candy is waiting for you at the cash register.
Therefore, you need to make a rule. Here is a good rule to follow. You are not allowed to splurge on more than 1% of your take-home paycheck in a single purchase without waiting 24 – 48 hours. So if you make $1,000 then anything over $10 will need to be thought about for 24 hours before purchase.
Now I know that seems crazy at first as most people won’t be able to spend even $50 on an impromptu expense. I am not saying that if you make a list to go to the grocery store you can’t spend money. I am saying that a lot of quick purchases add up quickly and can cause issues living within your means.
This is even more problematic in times of high inflation. If you feel that 1% is too strict choose something between 1% and 5% as the rule. Try it out for 30 days and see what happens.
5 steps to Prosperity
5 Steps to Prosperity
Learn the fasted way out of debt and into wealth with this free infographic giving you the first 5 steps out of poverty and into prosperity.
I want you to choose your hard. It is hard to have no money. It is hard to be disciplined with your money. So which hard do you want? Having no money or having to write down what you spend or delaying even small purchases.
Live consciously. When you want something imagine the feeling you get when you buy it. Then what does it feel like to use it for the first time? Now fast forward 6 months. Where is that object now? If it is in the garage or on a shelf gathering dust (like most of my objects….) put it back on the shelf.
You just got the best of everything. You got the dopamine chemical release in your brain. You’re welcome. And you got to save cash. You’re welcome again.
Wow, you read a lot to get here. Can you do me a favor, please? Can you leave a comment if this was helpful to you or if I missed something? Alternatively, it would help me out a lot if you shared this content with those that might need to see it. Thanks, you are the best!
One last thing before I go. Read my article about how to save $3,000 in 3 months. This will help you to hustle (without a second job) to live within your means and put some cash in your pocket.
About Dwight Scull
I have been married to my wonderful wife, Rebecca, who puts up with me since 1999. I am a proud father to my Gen Z, son, and daughter-in-law. Grandfather to my favorite granddaughter who was born in 2021.
I lost my mom, father-in-law, and 12 others in 2013 and was DEEPLY in debt. I started reading and watching all the financial info I could find.
I chipped away at my debt and went from a negative $105k net worth having one home paid off, no credit card debt, and saving/investing 45%+ of my gross salary.
I used these daily habits to lose 100 pounds and keep it off.
I believe that you can overcome any challenge you face if you just take small daily actions and be consistent with them. It is how you will be financially successful.
Join my free Facebook group to get a ton of free resources to help you get out of debt, learn how to invest your money and work toward having the option of retiring early.