One key thing that all people who have financial freedom have in common is that they live below their means. For example, Warren Buffet is worth 10’s of BILLIONS of dollars and he still lives in the same house he bought in 1958 for $31,500! Getting in the habit of living below your means is important. Here’s some tips on how to do it:
Understand What You Have to Spend
Before you do anything else you have to understand your income. If you get paid consistently, this isn’t too hard. If you live on commission or your income is consistent, you have to look at your three month average and use this as your baseline.
Track What You’ve Spent
Look back over the last few months of financial statements and see what you’ve spent your money on, then categorize it. Separate into shopping, eating out, rent/mortgage, utility bills etc.
Now that you see how your money is being spent, how does this make you feel? Are you doing well or is there a lot of work to be done? If you’re reading this article, most likely you need to cut out some spending.
First, Eliminate
This is exactly what it sounds like. Take a look at your bills and see what you can cut out. Did you spend a lot of money on Starbucks? Do you order in a lot? Are you paying for subscription services you barely use? Memberships you no longer take advantage of? Be ruthless and chop those expenses out. You’ll be surprised at how much ‘extra’ money you have.
Second, Economize
Once you’ve eliminated all you can, economize what’s left. This means find ways to save money on what you do spend. Sometimes this is easy, buying off-brand items at the grocery store, growing your own veggies, getting a lower cellphone or TV plan. Every single dollar helps.
Between Eliminate and Economize, your goal is to take your average level of predicted spending below your income level. That is living below your means!
Finally, Review
Very rarely is the first attempt at a budget perfect. As with anything, practice is key to success. Make sure you review your plan regularly in order to adapt to changes and sort out what is and isn’t working.
Now these tips alone won’t get on the level of the Oracle of Omaha, but it does go to show what a little financial discipline can do.