How to Start Living Below Your Means

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Almost every person who is debt free or financially independent will tell you that one of the keys to their success was to live below their means. In other words, they habitually spend less than they earn.

In today’s paycheck-to-paycheck world, spending less than one earns is uncommon. So how is it done? How can one learn to live below their means and start securing financial stability?

Here’s a plan to help you start living below your means and building financial security.

How to Live Beneath Your Means

Oftentimes, people live above their means because they don’t have any clear-cut financial or life goals. It’s tough to get motivated to manage your money better when you don’t have a solid reason for doing so.

Without goals, the you-only-live-once mindset takes over, and money decisions are often made based on what feels good at the time.

This is why we recommend that your first step for learning to live below your means is to determine your “why”.

Why do you want to be out of debt?

Why do you want to build wealth?

What are the reasons that you want to manage your money better?

Be sure that your “whys” are specific and write them down. Do you want more time with your family? Are you sick and tired of being stressed about money all of the time?

Make a list of what motivates you to live below your means.

1. Determine Where You Are At

The next key to learning to develop a habit of spending less than you earn to begin building wealth is assessing your current financial situation.

Start by making a list of all monthly expenses. Here are two valuable tools that can help you with this: the Starter Budget Form and the “How to Create a Budget in 10 Minutes or Less” video for easy budgeting.

Once you’ve made a list of your monthly expenditures (if you’re not sure, make an estimate), you can move on to the second part of learning, which is making a list of your liabilities. When making the list of your debts, you’ll want to include three key pieces of information:

  • Monthly payment
  • Interest rate
  • Balance left owing

By having a clear-cut picture of your debt situation, you can start formulating a plan that will ensure all of the bills are paid and yet still allow you to live beneath your means.

2. Track Your Spending for 30 Days

For 30 days, use an Excel Spreadsheet to track every expenditure. Record your expenditures daily so that you don’t fall behind and forget some expenditures or leave the task undone until it becomes overwhelming.

At the end of the 30 days, you’ll have a much clearer picture of how much you’re spending on groceries, entertainment, and other expenses. This picture will help you determine your next steps for learning to spend less than you earn.

If you prefer an app to make this process easier, check out Empower, a free app that will sync all your financial accounts to one place.

4. Create a Realistic Budget

Now that you’ve tracked your spending for a month, you can create a realistic and doable budget. Using the resources above, create a budget that will allow you to spend reasonably yet still have control over your money.

Set monthly spending amounts for fluid expenditures such as groceries, eating out, clothing, gasoline and auto maintenance, etc.

Use a “budgeted” column and an “actual” column, along with a “difference” column, so that you can compare your intended spending vs. your actual spending at the end of the month. To help you set amounts for spending, check out this article on recommended budget percentages.

After you’ve used your budget for a month and determined how much you spend, you’ll likely find one of two situations.

5. Cut Expenses Without Changing Your Lifestyle

If this is the case, then awesome! Now, you can determine which areas you will cut spending in so that you start saving money each month and living below your means.

Some ideas for where you can cut spending include:

  • Cable packages
  • Phone plans
  • Groceries
  • Entertainment costs
  • Gym memberships
  • Clothing
  • Eating out

Consider shopping around for services like auto insurance. Often times people can save money just by checking rates using a site like Esurance and switching to a lower-cost insurance provider.

After you’ve cut expenses so that you’re living beneath your means, make a plan to put the extra money you’ve found toward debt or into a savings account, certificate of deposit or other savings vehicle.

Designate a portion of your savings toward building wealth through investing if you so choose.

6. Fine Tune Your Budget

Some people live above their means because they simply aren’t aware of what they’re blowing money on. Others live above their means because their financial situation is way too tight due to debt payments and other obligations. This was us for a long time.

Our monthly obligations totaled more than our income, so it was no wonder our credit card debt was increasing and we were living above our means.

But we didn’t realize this and couldn’t correct the problem until we started budgeting and spend tracking so that we knew how much money we needed to pay the bills each month.

If learning to live below your means is going to take more than simply cutting back, you’re in for some hard work but it can be done. Here are the tips we used to go from having “more month than money” to “getting out of debt and building wealth”:

Use a Challenge Everything Budget

Go through your budget line by line and ask yourself two questions:

  1. Do I really need to be spending money on this?
  2. If it’s a necessity, how can I make it lower?

This strategy will require some discipline, but you can do it. The challenge everything budget will help you minimize your expenses as much as possible. Keep your “whys” in plain view for days when you feel discouraged or overwhelmed.

Look for Ways to Make More Income

By increasing your income, you can give your budget a bit more breathing room as you work to pay off debt. Ask your boss for a raise. Work overtime. Find a side hustle.

Do whatever needs to be done to bring more money into your home.

Make a Get out of Debt Plan

When your budget loosens up and you start to have more money than you do bills each month, you can begin accelerating paying down your debt.

Check out Dave Ramsey’s baby steps for getting out of debt and building wealth. This is the plan that Deacon used and the plan that we’re using, and it works if you’re willing to work it.

Keep putting that extra money toward debt until the debt is gone, and then move on to making a plan for saving and investing your extra money.

This way, you’ll increase your savings cushion and never again be stuck in a situation where you’re living above your means.


Any person who’s had experience going from living paycheck to paycheck to a life of financial freedom will tell you that perseverance is key to financial success.

Know that roadblocks and setbacks will come. Navigate through them if and when they arrive, get back on track and keep moving.

Don’t let any circumstance deter you from your dream of living beneath your means so that you can achieve your financial goals.

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  1. Cynthia Tyson says:

    I recently lost my job, and now I am only working 14 hours a week. I quit eating out and I spent no money for 5 days. I only eat at home. I donate plasma, which is used to make my car note. My part time job is for my car insurance and gas, and my VA monthly payment is for my rent. When I get another job I plan to stick to this budget and pocket the extra money. It is doable to live below my means.

    1. Good for you, Cynthia! We should all be so dedicated and disciplined! No one said it was always going to be easy. But, when you have no other choice it can be done. Therefore, why not do it the rest of the time too? It makes sense – as well as cents! 🙂

  2. I got my masters degree without resorting to student loans. Several people have doubted this and asked me how it was possible. It’s simple. Netflix plus Sling plus Hulu combined was still $100 less per month than cable. My car was pre-owned. Did I eat fast food? Never! Did I smoke or drink? No. Still, I had lots of fun without throwing money away. I watched my peers get fat, go into debt, and accumulate heaps of useless possessions because ‘that’s what they’re supposed to do.’
    Live below your means – it doesn’t have to be a struggle.

    1. Nice job! That’s awesome that you avoided student loans.

  3. Andrea Chetti Martinez says:

    My husband and I live below our means. A lot of people do not understand and have questioned our way of living. All I can say is that I can sleep at night with no worries at all. This is a great article, Laurie!!!!

  4. This is a great post, Laurie! You need to spend less than you earn – this common sense is a rarity these days. It is the foundation for financial freedom.

    If living within your means is not mastered early, it only compounds financial problems. As one’s income increases, their borrowing capacity does too.

    If the individual doesn’t learn to live within their means at a lower income, they won’t know to do it when their income increases – this means their debt increases with their income.

    At the end of the day, it does not matter how much you earn – all that matters is how much you get to keep.

    1. Laurie @thefrugalfarmer says:

      Thank you, Michael! “If living within your means is not mastered early, it only compounds financial problems.” I couldn’t agree more. It’s a vital step to financial security!

  5. Living below your means is the key to financial freedom. It’s so easy to forget this when you get a raise and spend every last cent before you even get the first paycheck. Thanks for the post.

    1. Laurie @thefrugalfarmer says:

      You’re exactly right!! Thanks, Kim. I appreciate the comment!