Buying a house, saving for retirement, paying off debts or dealing with a layoff are just a handful of the major financial challenges that every American faces at some point in their lifetime. While there are countless systems of accumulating and growing wealth, one central principle of personal finance is at the core of all financial planning: living below your means.
Spend In Moderation
In a nutshell, the principle of living below your means all boils down to one simple tenet: just because you can afford to spend money doesn’t mean you should. Credit cards don’t need to be maxed out. You don’t need to live paycheck-to-paycheck. Instead of thinking about what you can afford to buy, think about what you need to buy to maintain a comfortable lifestyle.
Living below your means doesn’t require you to deprive yourself of all of life’s pleasures. A healthy budget is a lot like a healthy diet. Nobody wants to starve themselves, but dialing back on junk food and indulging in moderation is one of the keys to successful results. Dieting can be difficult. So is prioritizing financial health.
If you are one of many Americans who spends at least all of your paycheck every month, it may seem impossible to set aside the 20% or more per month that many financial experts recommend. But there are plenty of ways to cut down on expenses that may otherwise seem necessary.
How many recurring monthly memberships are you paying? Do you really need Amazon Prime Video, Netflix, Inc. (NASDAQ: NFLX), Hulu, HBO, internet and cable TV? Can you cut that $40 gym membership and simply walk your dog around your neighborhood to stay fit? There are thousands of home workout videos on YouTube for free.
New cars lose 20% of their value within a year. Can you instead buy a used car? Do you need a different car at all, or are you just tired of the one you have?
How many days a week do you go out to restaurants or bars to eat and socialize? You could potentially save $200 per month by simply inviting friends over to your house or apartment for dinner and drinks instead of going out just one night a week.
Berkshire Hathaway Inc. (BRK.A)(BRK.B) CEO Warren Buffett is one of the wealthiest people in the world, with a net worth of more than $80 billion. Buffett is known for his investing savvy, but one of the biggest keys to his success has been living below his means. Buffett eats at McDonald's Corp (NYSE: MCD) every morning and never spends more than $3.17 on breakfast.
While he could afford the biggest mansion in the country, he lives in the same five-bedroom house he purchased for $31,500 in 1958. Adjusted for inflation, a similar house would cost Buffett just $280,347 in today’s dollars.
The best place to start when attempting to live below your means is to take inventory of your spending. There are a number of apps and websites that Americans can use to create and maintain budgets. You may not realize just how much money you are wasting until you look at the numbers.
Living below your means may seem difficult at first because it is not instantly gratifying. Nobody enjoys depriving themselves of things they want. But the satisfaction from living below your means comes later in life when an unexpected layoff doesn’t immediately spell financial disaster or when you can retire two years earlier because of the extra investments you were able to make along the way.
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