Do you know what the first step to saving money is ? If you ask people who have built
wealth over a long period of time, they always started with one thing.... and that is to
save money ! And they all have one thing in common, how they managed to save so much money
so they could build their wealth, they all lived way below their means. Living below
your means is the first step to saving money and therefore the first step to building wealth.
No matter what financial goal you want to achieve, it all starts with living below your
means. Did you know that the average credit card debt of a US household is about $16,000
? Basically, if you have debt, you are living above your means especially when it comes
to credit card debt because this is mostly consumer debt. If you've been living above
your means and using your credit card more often than not, you'll find it really hard
to live below your means at first, but as is often the case, the hard things are the
things that have the biggest positive impact later on. It will definitely help you stop
living paycheck to paycheck and achieve your financial goals, whatever they may be.
But what does it even mean to live below your means ?
In general, you can say that you simply spend less than you earn. There are basically 3
ways you can do that. Either you start earning more, cut your expenses heavily or you do
both. You need to, to keep it simple, increase the margin between income and expenses to
ultimately have more money to save. To illustrate this with an example to show you what it can
look like to live below your means and save more money.
Let's say I earn $50,000 a year and save 10% of that, that's $5000 a year in saved money
that I can put aside or invest, at the same time I'm already living below my means. Now
it all depends on what your personal goals are that you want to achieve with your saved
money. For example, if I want to retire at 40, I will definitely need to save more than
just $5000 a year to reach that goal. But if I want to buy a new car in 2 years, that's
definitely doable. Staying with the example that I want to retire at 40 and realize that
$5000 a year is not enough, I am left with the options of cutting my expenses and then
saving 20% of my income, for example, and thus saving $10,000 a year. The same goes
if I then decide to do a side hustle, which sooner or later brings me an additional $20,000
income a year and I then earn a total of $70,000 a year. If I can then save 20% of that, I
can save $14,000 a year.
It's easier to reduce your expenses in the beginning than it is to increase your income,
which is why today I've brought you 5 ways you can reduce your expenses and live below
your means so you have more money left over at the end of the month
But before we dive into the topic : Hello and welcome back to our channel ! And if you
are new here : We are the finance nerds and on this channel we are helping hardworking
people like you to get more out of your hard earned money by showing you how to use your
money in the most effective way. Remember to give this video a thumbs up at the end,
if you got value out of it and now you will get 5 ways to live below your means.
Create a budget A budget is your foundation for financial
success. Without a budget, you won't have control over your finances and if you don't
have control, you can't change your financial situation. It is very easy to create a budget:
1. calculate your net income and 2. determine your monthly expenses. Distinguish your monthly
expenses between fixed costs and variable costs. Your fixed costs include, for example,
your rent, insurance and food and drink. Your variable costs include, for example, gasoline,
clothes, and restaurant meals. However, try to estimate your variable costs for the month
so that you have some direction. A budget also allows you to quickly determine if you
are living above or below your means by simply subtracting your expenses from your income.
Is there more money left over or are you in the red? If you are in the red, you need to
adjust your spending. It also makes sense to include the amount you want to save in
your expenses, so that it is not forgotten.
Reduce unnecessary expenses To tie in with the last point, it makes sense
to reduce unnecessary expenses. You can now see these clearly in your budget. If you see
that you are spending a lot of money on things like subscriptions, clothes or your car, ask
yourself "Do I really need these things?" or "Can I save money here?For each purchase,
ask yourself if it is really necessary to buy this item or if there might be a cheaper
alternative.
Clearly distinguish between needs and wants There is a big difference between "I need
this" and "I want this." Here, too, it can help you to ask yourself whether you really
need this counter-state right now? Do you really need the new car? Does it have to be
this jacket ? I recommend that you set a percentage in your budget for each area of your life,
where you determine how much you want to spend in each area and then you do not spend more
than what you have set. In addition, the 50-30-20 rule, which we have
discussed here many times, can also help you. 50% is for your Need, 30% for your Wants and
20% for your debt payment and saving. I'll link you to a video in the upper right
where we dive into this rule in more detail.
Track your spending Tracking your spending is something I've touched
on a few times in this video as well and is also part of your budget. Remember to track
your spending every month so that you stay on track and also stick to your budget. To
make it easy I recommend you either use a budget app or create a simple spreadsheet
where you record every purchase. It's also great for thinking about your purchase before
you make it, because you'll have to enter it into your spreadsheet afterwards.
Eliminate Debt As long as you have debts, it will be difficult
for you to live below your means, because you will have to squeeze money out of your
income every month to pay off your debts. There are several ways to reduce your debt
and I'll show you my 2 favorites. The first way is to pay off your debt systematically
through the 50-30-20 rule I mentioned. However, paying off debt should be your top priority,
which is why you don't use 20% for your debt payment, but use the 30% from Wants. Thus,
the rule changes to 50% Needs, 30% Debt Payment and 20% Wants. The other way is to refinance
your loans so that you can bundle your loans and thus reduce your interest rate. There
are several providers for this, I have linked my favorites below in the description, feel
free to inform yourself. If you enjoyed the video and now want to know
more about how to take control of your finances, click on the video to the right or check out
the video description. There you will find more videos and resources to help you have
more money at the end of the month.
And remember to hit the like button and subscribe to the channel if you are new here
We hope to see you in the next video.