Are you struggling to make ends meet? Are you trying to work toward a major financial goal, like buying a house or sending your child to college, but falling short?
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Financial guru and frugal living expert Austin Williams is a testament to the power of living below your means. GOBankingRates outlined Williams’ steps to live below your means, helping you take control of your finances.
Understand the Basics of Living Below Your Means
Before implementing actionable changes to live below your means, you must understand your what and why. What does living below your means entail? Why do you need to live below your means?
For many people, living below their means is a way of survival, especially with rising inflation and a higher cost of living. For others, living below their means opens the door to new opportunities, like saving for a home down payment or taking a dream vacation.
Know Your Finances
After you understand your why, you need to examine your financial situation. How much is your salary or hourly rate? What is deposited into your bank account and how often? Living below your means requires you to use your net income, which is your gross income minus payroll deductions like taxes and benefits.
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Track Your Spending
Once you know how much money you have coming in, it’s time to track your spending. Create a spreadsheet or invest in a budgeting app that shows you where your money is going and whether your spending habits align with living below your means.
Prioritize the Three Big Expenses
When reworking your expenses to live below your means, prioritize the three big expenses: housing, transportation and food. Cutting out your $5 coffee trip each week won’t have as much of an impact as reducing your rent by $300. Lowering the three big expenses will have the most profound impact on your budget and help you live below your means.
Cut Out Unnecessary Expenses
Even if you do lower your three big expenses, that doesn’t mean that your small expenses are immaterial. In fact, by cutting out unnecessary expenses in addition to lowering your housing, transportation and food, you can save as much money as possible. Review your subscriptions, insurance, utilities and restaurant spending to find ways to cut costs.
Build Your Emergency Fund
After you’ve lowered your expenses and are generating free cash flow each month, start to build your emergency fund. Your emergency fund is your safety net if an unexpected cost comes up, like losing your job or needing to replace your air conditioning. Your emergency fund should contain around six months of expenses.
Invest Extra Money
Either while building your emergency fund or after you’ve reached your reserve number, start investing any extra money. Investing just $25 or $50 a week can have a huge impact on your ability to retire comfortably or even early.
Take Advantage of Value Spending
Finally, once you’ve met all of your other financial goals, you can use any remaining funds for your wants. It’s important to spend money on wants every so often to balance your life. However, living below your means generally doesn’t free up thousands of dollars for wants spending. By pairing value spending with your wants, you will maximize every dollar.
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This article originally appeared on GOBankingRates.com: 8 Steps To Live Below Your Means, According to Frugal Living Expert Austin Williams
