Financial Resource Center

Money Management


Live Simply, Reap Savings

by Monica Steinisch / September 19th, 2019


There’s been an ongoing movement to simplify and unclutter our lives as a way to ease stress. One piece of advice has the power to both simplify and transform your life: Live beneath your means.

That philosophy is hard for some to adopt. For them, getting a raise doesn’t mean paying off debt or saving it. It means staying on the “make more, spend more” hamster wheel, racking up even more debt. 

Real change only possible with new mindset

In their best-selling book, Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence, co-authors Vicki Robin and Joe Dominguez explore the role of money in our lives and its power over us. Among their observations, the authors note that Americans "project onto money the capacity to fulfill our fantasies, allay our fears, soothe our pain, and send us soaring to the heights.... We buy everything from hope to happiness."

Funny thing—spending as a means to achieve greater fulfillment doesn't seem to work. Numerous surveys conclude that consumers on the higher end of the middle-class earning and spending scale are not any happier than those on the lower end.

Spending less than you earn results in less stuff and less stress.

So why do we keep spending beyond our means? Habit may be partly to blame. A daily routine that includes premium coffee, lunch, and snack purchases could have you spending at least $15 a day without a second thought. To avoid mindless spending, Robin and Dominguez encourage consumers to ask of each expenditure whether it brought "fulfillment, satisfaction, and value in proportion to life energy spent"— the hours of work it takes you to pay for a purchase. When you realize that dinner at an expensive restaurant will cost nine hours of your energy, you start to analyze your spending choices more critically.

Change your mindset that views spending as a reward and saving as deprivation. Instead, realize that overspending can deprive you of the freedom to choose how to live and work, and see living beneath your means as the path to peace of mind and financial independence.

Straightforward steps reduce spending, increase saving

The point of living beneath your means is to avoid debt and save for what is most important to you—homeownership, freedom to spend time with your family, early retirement, etc. Keeping your reward in mind will make adopting these techniques for easier:

  • Make saving automatic. According to David Bach's book The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich, the key to accumulating wealth is to pay yourself first, automatically. That's easy to do: Just set up a funds transfer from the account where your paycheck is deposited to a savings or investment account.
     
  • Track your spending.  Writing down your expenses will help you change automatic routines, like going out to dinner every weekend, and make you aware of your choices.
     
  • Challenge every expense. Compile a list of everything you spend money on. Then look at every essential expense, like housing, groceries, transportation, and determine how you might be able to reduce each one. Then make a list of your nonessential spending (for example, entertainment, meals out, and vacations) and determine which expenditures deliver the greatest bang for your buck. Also, think of ways to save money in those areas. For example, if you love eating out, you could substitute a less-expensive brunch for dinner.
     
  • Avoid temptation. The easiest way to do that is to not make shopping a recreational activity.

 

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