“Live below your means!” You might hear that a lot from financial experts all over the internet and social media. “Live on less than you make.” When we first hear it, it probably makes sense, it resonates with us, but what does it actually mean? Living below your means implies just that. You make a certain amount of money, and you live in such a way that you do not spend it all.

It sounds simple, yet implementing it, is one of the biggest challenges that people face. Almost 80 percent of Americans live paycheck to paycheck. That means every paycheck that comes in is spent, there is no excess and they need the next paycheck to show up on time or they will have a problem. So living below your means sounds like a good idea. But how do we do it?

man looking at bill holding his head

How do we live below our means?

There are four main elements to living below your means.

  1. Actively budget. This means we plan our spending and we track it to ensure we spend money where we planned to spend it.
  2. Eliminate debt. This includes all debt except a mortgage. Debt payments are huge challenges to living below our means. We make financial decisions and sign up for payments in hopes that we will be able to handle them long term, but more and more decisions get made, more and more debt is signed for and then we realize that a big percentage of our income goes out in the form of payments every month.
  3. Prepare to handle the unexpected. We have insurance to handle the big unexpected things, like death, medical expenses, and car wrecks. We have an emergency fund to handle the smaller unexpected things like car repairs, insurance deductibles, and job loss.
  4. Save for the future. We don’t always know what the future holds, but we do have hopes, dreams, and goals. Maybe a new car, a wedding, a home purchase, and retirement. Having a savings strategy is key to a good financial plan.

What does Active Budgeting look like?

The first thing is to prioritize where your money goes and then track it weekly to ensure all your money goes where you told it to. All monthly expenses can fall into two categories, needs and wants. Basic living expenses are needs. These include food, shelter, clothing, and transportation to work.

Food: Basic groceries, not eating out. Food to sustain our being. Unless you have significant dietary restrictions, this amount is typically about $150 per person per month. A household with one or two might be closer to $200-$250 per person per month. For a larger household of maybe six or eight, that number might be lower and closer to $100-$125 per person per month.

Shelter: This is a mortgage, rent, utilities, phone, and insurance. This would not include items like video streaming subscriptions or video apps. Those are entertainment and fall into wants.

Clothing: You need clothes, but you don’t need to buy them every month and you can also shop clearance racks and thrift stores.

Transportation to work: Basic transportation to work. This may be a bus fare, parking expense, gas in the car, car insurance, and tolls. This is not an excuse to have a $500 car payment or lease. That would be a want.

Beyond these items are what we call “wants”. You can absolutely include wants in a budget, but they cannot take away from your needs. You also want to make sure wants are prioritized. If you are married, you and your spouse need to agree on the priority. You don’t want to spend all the rest of your money on wants because there are some other items that we need to still fund.

Track this in a budgeting app like Mint or EveryDollar, in a spreadsheet, or even by hand in a notebook. Use whatever system you will stick with. But do it. Start today!

basket of groceries

How to Eliminate debt?

The first step in eliminating debt is to make the decision not to borrow money anymore. You can’t bail out your ship if you are continuing to flood it with water. Don’t borrow for emergencies. Don’t borrow to purchase a vehicle. Don’t sign up for 12-month zero-percent financing. And the hardest one for most people, stop using a credit cards. Using a credit card, even if you “pay it off” every month is borrowing. You are borrowing money for 30 days. This is a behavior we are trying to change. We need to stop borrowing on all fronts if we hope to eliminate our debt.

If we have debt, it should appear in our budget right after the first four needs we mentioned above. After we list the required payments, we need to determine how much money we have left to pay towards our debts before starting to fund our wants.

Yes, you heard me, put more money towards paying your debt before you start spending money on wants.

This takes some real maturity. It requires us to so “NO!” to ourselves and maybe our kids. This is not an easy decision and will usually take some strong convictions on our part. If we are married, this is usually a pretty lively discussion with our spouse. The reason we eliminate our debt is that once it is gone, you get in control of your money, you free up several dollars every month that you can repurpose towards achieving your goals.

Our Personal Story:

When my wife Taryn and I were beginning to get our finances under control, I remember looking at our first’s month budget back in 2014. Between our home equity loan, two car loans, student loans, and credit card debt, our minimum payments each month totaled $1,800.

The budget was beyond tight.

I remember thinking that once we had this debt cleared, it would free up $1,800 a month in our budget. Once it was gone, if we wanted, we would be able to save up $18,000 in ten months! That blew my mind! That was a new car. It was(and is) a lot of money. This idea was exciting and helped fuel our resolve to eliminate the debt as quickly as we could.

Be prepared to handle the unexpected.

Being prepared to handle the unexpected as well as the expected might feel like a luxury that is unattainable. That is true. When we are living paycheck to paycheck every money situation has the potential to create a major issue. We are so tight, that one misstep can start a chain reaction, like dominos, and everything falls and we enter a crisis. So how do we avoid that? We plan.

First, let’s talk about what unexpected expenses can show up in our life. These items could be a job loss, a medical situation, a car wreck, a car repair, a home repair, or an appliance dying on us. The truth is, we could easily expect all of these to happen at some point. We just don’t know when. So let’s be prepared.

For items like a car wreck or a medical situation, car insurance, health insurance, and home insurance help to carry the load. We still have our deductible, so we need to prepare for that. Cars break and repairs need to happen, we should be prepared. If you were like me, before we were in control of our finances, I relied on high-interest credit cards for covering “emergencies”. But once we stopped using credit cards, it forced us to have an emergency fund that we use for emergencies.

Having an emergency fund that is the equivalent of three to six months of expenses should cover most emergencies. This isn’t six months of income, but rather six months of expenses. Yes, that doesn’t cover a job loss forever. The only cure for job loss is finding a new job. But the emergency fund will help to cover the income gap, the stress, and anxiety, as we look for a new job.

car parking lot

Save for the future.

Finally, save for the future. Having a savings goal that includes retirement savings, and other long-term goals is key to a sound financial plan. Having multiple sources of income and diverse investments is key. But we won’t be able to put any money towards them if we are strapping ourselves with dept payments if we succumb to impulse buys and other poor financial choices. Rather, we want a firm grasp on our finances where we make a conscious choice about how we spend and save our money.

When we eliminate unnecessary expenses, we are able to save for big purchases. When we have a plan, we begin to see how other, maybe smaller decisions, begin to affect the big bigger picture. Having a plan can correct our mindset by showing us a new perspective, a new lens to view our financial decisions.

Once we get organized with our budget, we eliminate our debt, we have a plan in place to defend against the unexpected, and we are able to start funding our dreams. That might be a well-funded retirement, a new car, a private island, the ability to be incredibly generous, or whatever we have dreamed about. We need to put in the effort if we want to see results.

Some rules for long term savings:

  • Save 15% of your income into retirement once your debt is paid off.
  • Make a plan for large expenses and create a sinking fund to handle them.
  • When income increases, don’t be quick to expand your lifestyle, instead first increase your savings.

So why do all this?

I want to be clear, order is good.

Financial freedom is good.

Saving money, having financial goals, and creating a plan to get there is important. But why?

It isn’t just about having a great life. I firmly believe that our heavenly Father has a plan for each of us. Everything belongs to him, even our money and our ability to earn it. When we have everything in the proper order, we are better able to experience his blessings. We don’t save for retirement so we are rich, have an easy life, and need to build bigger barns.

Rather, we are storing up, so that in moments of need, ours or others, we are able to respond to the Lord’s promptings. It is very much like the store of Joseph in the bible when he interprets the pharaoh’s dream about the seven years of harvest followed by seven years of famine. If we consume it all in the good years, the thin years will kill us. Let’s put ourselves in a position where we are able to respond to God’s generosity, and take care of our family and those he puts around us.

You might be in a tough situation now. You need to look at the overall picture. Is there an income problem? Do you need a second job? Is there an expense problem? Are your spending habits out of control. Maybe you bought an expensive house and are now drowning in mortgage payments. Maybe you aren’t prepared for common life events. The list can go on. But there is hope.

You need to first identify the problem, then create a plan to live below your means so you can put yourself in a position to serve God and those he puts in your life.


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