Living below my means is my No. 1 not-so-secret method of building wealth. It is one method of getting rich that is truly fail proof.
I wasn't sure how to get started about a decade ago. Looking back now, I can see I took certain steps to get on the right path. I no longer live paycheck to paycheck because I consistently live below my means, not just within my means.
Figure out a budget
I started by figuring out how much money I needed every month to pay my regular bills. I thought about how many more years I'd want to pay on my mortgage. I wrote down the minimum I'd have to pay just to meet my obligations as well as my "ideal" amount I'd like to pay to get out of debt faster. I also thought about how much I'd like to save for retirement and other savings goals.
Set up automatic deductions
My next step to living below my means was to set up automatic deductions from my paycheck based on the money I had leftover after expenses. I had my brokerage firm take 10 percent out of my paycheck to invest in my 401(k) at work. I had $100 a month automatically deducted from my checking account into my Roth IRA. I had $50 a month automatically moved from checking to savings so that I could only spend the money left in checking.
Have a backup plan
To live below my means, I have to be willing to make sacrifices to avoid going into debt or taking out a loan to pay for unexpected expenses or emergencies. I defined financial emergencies, which would not include sales on my favorite shoes at the department store. I decided I would first use money from my vacation fund; then use money from my "discretionary spending" fund before dipping into my emergency fund. I want to preserve my emergency fund and continue building it up in case I have a major financial emergency in the future.
Earn more money
Some people think living below your means translates into living in poverty or being extremely frugal. For me, it's easier to earn more money and work longer hours to balance my personal budget as opposed to making drastic spending cuts. As long as I spend less money than I earn and put money aside for the future, I am staying on track.
I've lived below my means for the past decade. I occasionally go over budget or fail to save my ideal amount every month, but I no longer live paycheck to paycheck. If I have an unexpected bill, I don't have to charge it to my credit card. Getting rich slowly by making a little bit more than I need every month and putting it aside has made all the difference for my finances.
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- Banking & Budgeting