How To Start Living Below Your Means


These are uncertain economic times. The supply chain disruption resulting from the COVID-19 pandemic is still ongoing. Inflation is skyrocketing to levels not seen in decades, and some economists suggest another recession may be coming. And the war in Ukraine is adding fuel to the fire.

woman holding wallet

So now, more than ever, it is essential to have reserves in place that will help you weather these highly unpredictable times. Most U.S. households have less than $10,000 in liquid assets available for emergencies, covering only a month or two of average living expenses. To build that safety net quickly and effectively, you need to start living below your means.

Why You Need to Live Below Your Means

Everyone is familiar with the idea of living below their means. Unfortunately, many consumers tend to do exactly the opposite. They spend money freely without regard for how purchases will impact their financial health. And too often, consumers buy above their means solely to get high-end brand names, fancy homes, sports cars, luxury goods, and other items intended mainly to impress others.

As a result, consumer debt has ratcheted up quickly, reaching $15.84 trillion at the end of 2021 after the single largest annual increase in history. Credit card debt alone accounts for nearly $800 billion of that amount.

The good news is that it’s not as hard as you may think to live below your means and secure your financial future. You simply need to earn more money than you’re spending.

Understand Your Current Financial Situation

Many people have no idea how their income, savings, and expenses line up or whether their current expenses exceed their income. They can open up an app on their phone to tell you their current bank balances. However, they don’t know what monthly expenses are upcoming and how those will impact their future cash flow and available funds. So, the first step in living below your means is determining how you are living right now.

In reviewing your finances, there are a few key things to look for.

Do you have a sufficient emergency fund?

Most financial experts recommend that you have at least three to six months of essential living expenses set aside in case of emergencies. As economic and political volatility increase, so too should your emergency fund. An insufficient emergency fund is one of the best signals you are living beyond your means.

What is your savings rate?

While there are many ideas about how much of your income you should save, 10% is a good baseline. Many people focus their savings on retirement assets like 401(k)’s, IRAs, and pensions. But these assets are not easily used for emergencies, so you should ensure that you are also putting some aside in highly liquid, easily accessible accounts. If you are socking away 10% religiously, but it is all in a 401(k), you may be well-positioned for retirement, but you still may be currently living beyond your means.

What is your debt load?

Do you know how your total debt compares to your income? Another guideline for you to consider is the 28/36 rule. According to this rule, you should spend no more than 28% of your income on your housing, including your mortgage and associated expenses like property taxes and insurance. If you add in other debt, such as student loans, car loans, and credit card debt, your total debt payments should be lower than 36% of your income.

So if you have a median household income of $67,521 a year, your total monthly housing expenses should be no more than $1,575.49. Likewise, your total monthly payments for all debt should not exceed $2.025.63. As you can see, these are not numbers that support loan payments for fancy houses or BMWs.

So what should you do if you find that you are indeed not living below your means?

Be Observant About Your Spending

The biggest enemies of financial health are impulse spending and buying things that are not necessary. Is your current phone working well? Then maybe you don’t need to spend $1000 to get the newest version. Does your office have free coffee? Then avoid stopping at Starbucks on your way to work every day. Learning to restrain your impulses is key to living below your means.

Better yet, restraint helps you build wealth. Just ask Warren Buffett, one of the world’s richest men. He has lived in the same house since 1958, and he buys used cars to keep his costs low and minimize losses from depreciation. Living this way for years helped him become the successful billionaire he is today.

Start and Stick to a Budget

Budgeting is one of the most important things you can do to get your spending under control. There are many excellent budgeting apps available to help you, and there is a system for everyone.

A great option for budgeting for beginners is the envelope budgeting system. You distribute your available assets and expected income into different “envelopes,” each of which represents a particular expense (e.g., mortgage, car payment, groceries, utilities). Then, each month you limit yourself to spending what is in the envelope. If an expense exceeds what is in the envelope, you must take it from a different envelope.

Another option is zero-based budgeting, where you allocate all of your monthly income to expenses, debt payments, and savings.

Budgeting may not be fun, but it is simpler than you think and incredibly helpful in starting to live below your means.

Learn, Learn, Learn

The internet is overflowing with resources on living more frugally while still enjoying your life. And there are excellent free courses on everything from budgeting to financial planning to penny stock trading and investing in the stock market. Take advantage of these resources that can help you achieve financial freedom!


Living below your means does not mean becoming a penny-pinching miser. It does mean being more aware of your spending habits, your existing debt, and your ability to handle unexpected problems. But it also means putting yourself in the best position to have what you need to enjoy your life fully.

Kiara Taylor
Meet the author

Kiara Taylor is a financial writer and Research Analyst. She is an expert at risk-based modeling having worked in the finance vertical for the past twenty years. She has a Master's Degree in Finance from Ohio State and has worked at Fifth Third Bank, J.P. Morgan, and Citi in emerging markets and equity research.