How to Live Below Your Means: 9 Simple Ways to Save Money Now

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Last Updated on November 12, 2022 by Rebecca Lake

Ask most personal finance experts and they’ll tell you there are two basic rules for managing money well: pay yourself first and learn to live below your means

To live within your means is to not spend money needlessly. It means spending less than you earn, saving consistently and avoiding debt as much as possible. 

It sounds almost too simple. But if you can master living within your means, that can put you one step closer to financial independence and freedom. 

Think about how much you spend in a month compared to what you make. Is it more or less? And are you saving money? 

If not, don’t panic. Half of Americans don’t have an extra $250 to spare

Instead, take it as a sign that it’s time to take living below your means seriously. Here’s how to do it. 

Related post: 23 Incredible (and Free!) Money Saving Charts to Download Now

What does it mean to live below your means?

If you’re not sure what it means to live beneath your means, here’s a simple definition:

Living below your means is when you spend less money than you make each month. 

how to live below your means

That means you’re not living paycheck to paycheck. You don’t have “more month than money” as Dave Ramsey likes to say.

When you live within your means you’re able to:

Why does being able to live beneath your means matter?

It’s simple. 

Living with your means can make it easier to reach your big (or small) financial goals. 

Consider this. According to one survey, 54% of Americans regularly spend more than what they make.

The pandemic changed consumer spending habits somewhat. But many Americans are still struggling to save.

If you’re in the “I can’t seem to save any money” boat, then learning how to live beneath your means can help get your finances on the right track. 

Related post: 17 Dave Ramsey Money Tips to Help You Grow Rich

What are the benefits of living below your means?

If you can make the commitment to live below your means, you can reap some serious benefits. Here are some of the best reasons for living within your means. 

1. Less financial stress

Survey after survey shows that the number one thing stressing Americans out is money

If you’re someone who’s constantly stressed about your finances, ask yourself what it would feel like to not have those worries. 

For example, in my first few years of being a single mom I lived on a very tight budget. Something as simple as going to the grocery store gave me anxiety because I was always worried about how much I was spending.

When you live below your means, buying groceries or paying bills is normal business, not cause for a panic attack. 

2. Pay off debt

Debt can be a huge obstacle to achieving the things you want financially. 

You may want to buy a home, for example. But your student loan payments may be keeping you from saving up the money you need for a down payment. 

Living beneath your means does two things:

  • It helps you pay off the debt you already have
  • It can help you avoid taking on new debt because you’re not overspending

Paying off debt takes time but spending less than you make can help you get ahead. 

Related post: How to Stop Spending Money: 20+ Practical Ways to Spend Less, Save More

3. Improve your relationships

You’ve probably heard that money is the number one thing couples fight about. And if you’re married or partnered up you might know this to be true from your own experience. 

Learning how to live within your means as a couple can help put a stop to money arguments. 


Because when you’re on the same page about money as a couple, you’re less likely to disagree over how to manage your finances. 

4. Start building wealth

The median net worth for American households is $121,760. This represents the middle range for how much wealth Americans have accumulated. 

That’s not bad but it’s nowhere near the $1 million or more you might need to retire. And if you hope to retire early you might need even more than that. 

When you’re living below your means, building wealth becomes easier because you have money to save and invest. 

Even if you’re only investing $100 to start with a platform like M1 Finance, you’re taking the first step to growing wealth. And the better you get at living within your means, the more you’ll have to invest. 

5. Financial security and freedom

Financial security and financial freedom can mean different things to different people. 

For example, your idea of financial security might mean having zero debt other than your mortgage. Or it could mean that you can plan a family vacation without having to go into debt to do it. 

Financial freedom can also mean changing up the way you make money. 

For example, instead of working a 9 to 5 job you hate you might be able to start a business from home or make money with a blog

This is how I define financial freedom: being able to work when and where I want and being present for my kids. That’s what your reality can be like too when you live below your means. 

Signs you’re living above your means

By now you should have a pretty clear idea of what it means to live below your means. 

But how do you tell if you’re living above your means? Here are some signs that could be dead giveaways that you’re spending more than you make. 

1. You have credit card debt

Credit cards can be a convenient way to pay for things and potentially earn some rewards on the things you buy. 

But if you have credit card debt and the balances never seem to go down or they just keep going up, that’s a big red flag that you’re living beyond your means. 

2. You have little to no emergency savings

This may or may not be surprising but 21% of Americans say they have no emergency savings

The pandemic highlighted just how important it is to have money set aside in case you get laid off from work or get sick and can’t work. But if you don’t have savings at all, it could be because you’re living beyond your means. 

3. You don’t have a retirement fund

Saving for retirement is just as important as saving for emergencies. 

At some point, you’ll need or want to stop working. And even though Social Security can help, it may not be enough to cover all your monthly expenses in retirement. 

If you have no retirement savings or you’re stressed about saving enough like 80% of Americans are, then finding ways to live below your means could help change that. 

4. You don’t know how much you spend

Do you keep track of your spending each month? 

If you said no, then you’re not alone. An estimated 65% of Americans don’t know how much they spend each month

That’s a problem because if you don’t know how much you spend it’s hard to say if you’re living above your means or below your means. Chances are, you’re probably living beyond your means if you don’t know what you spend and your debt keeps climbing. 

5. You spend money for the wrong reasons

There’s a difference between spending because you need to for a legitimate reason and spending just to spend.

If you find yourself spending money on things because you’re feeling anxious or sad or to try and keep up with your friends’ lifestyle, those are signs you could be living beyond your means. 

How to live below your means

Ready to make a real change in your financial situation and stop spending more than you earn? 

These steps can help you live within your means, without feeling broke or deprived. 

1. Start a budget

Having a budget is a necessity if you’re serious about living below your means. 

Without a budget, it’s just too easy to overspend

Making a budget isn’t hard. It starts with adding up what you earn and what you spend. 

living below your means

Here’s a simple way to tell if you’re already living within your means:

  • Subtract what you spend from what you earn.
  • Get a positive number = You have money left over and you’re living below your means.
  • Get a negative number = You’re spending more than you make and you’re living above your means.

If you got a negative number, making a budget can help. I have a free budget template that can get you started. 

Related post: 70/20/10 Budget Method: How to Use It to Spend, Save and Invest

2. Separate wants and needs

Learning to live within your means also requires you to prioritize how you spend your money. 

This is where the difference between wants and needs becomes critical. 

A want is anything you don’t need to spend money on to live. A need means any expenses that are required for a basic standard of living. 

So, for example, housing is a need. The latest smartphone is a want. 

Drawing clear lines between needs and wants can help with trimming out the “extras” in your budget that might be keeping you living above your means. 

If you made a budget in step one, go over it line by line.

For each expense, ask yourself what is a want and what is a need. Then go back through the needs a second time to weed out any wants in disguise. 

3. Reduce your expenses

One of the easiest ways to live below your means is to simply spend less. 

Getting clear about your wants vs. needs is a first step; once you know which “wants” you’re wasting money on you can work on cutting those out of your budget. 

But you can also look for ways to reduce what you spend on needs. 

For example, that might include:

  • Refinancing your mortgage to lower your monthly payment
  • Getting rid of an extra vehicle to save money on gas and insurance
  • Raising insurance deductibles to lower your monthly premiums

You may also be able to save money on smaller expenses, like streaming services or phone service. 

If you’re not sure where to find extra savings on bills, you can use a bill negotiation service like Billshark

Billshark reviews your expenses, then negotiates with your billers to help you get a better deal. 

It’s a simple way to save more money when you’re trying to live beneath your means. So if you’re not taking advantage of it yet, learn more about how Billshark can help you save.

Related post: 42 Ways to Drastically Cut Expenses and Stop Bleeding Money

4. Switch to paying cash

Eighty-percent of Americans say they’d rather swipe a card than spend cash.

But using credit or debit cards can be a problem if you’re trying to live below your means. Studies have shown that using plastic to pay can lead to spending more than you initially planned

If you’re in the habit of using debit or credit cards, consider making the switch to cash for one month. 

Going cash-only for a month can help you see if there’s a difference in how much you spend and where you spend it. You might be surprised to see that you spend less or make fewer impulse purchases when you have to hand over physical money versus paying with plastic. 

You might even decide to adopt cash envelopes as your new budgeting method. If you want to give it a try, here are some fun cash envelope options.

5. Track your spending

Keeping track of spending is important for sticking to your budget. If you’re not tracking what you spend, then you’re not really in control of your money. 

There are different ways to track spending. 

You can write it down in a budget planner. Or you might use a spreadsheet to track expenses. 

Using an app like Personal Capital is another option. Personal Capital syncs up with your bank accounts to automatically track spending. 

If you can’t go cash-only for any reason, this could be an easy way to see where your money’s going when you spend it with credit or debit cards. 

6. Save automatically

Learning to live beneath your means isn’t always easy. And sometimes, you might have to trick yourself into it. 

This is where saving money automatically helps. 

When you set up automatic deposits into a savings account or investment account, you’re not giving yourself the choice to spend money. 

There are different ways to save money on autopilot. For example, you could:

  • Set up recurring transfers from checking to savings at your bank
  • Direct deposit some of your paycheck into a savings account
  • Use apps to save money for you

Out of those options, the third one is great if you don’t have a lot of money to save in your budget. 

Apps like Digit and Acorns save money for you so you don’t have to think about it. 

With Digit, the app reviews your spending and looks for extra money here and there you can afford to save. Digit then transfers those dollars and cents to a savings account for you.

Acorns rounds up your purchases, then deposits the difference into an investment account. This is an easy way to start investing and building wealth, while living within your means. 

Sign up for Digit to start saving automatically

Get the Acorns app to invest on autopilot

7. Reduce your debt

If you have debt, then paying it off can help you get a step closer to living within your means.

There are different ways to pay off debt, including the debt snowball (Dave Ramsey’s preferred method) and the debt avalanche. 

One prioritizes paying off debts from lowest balance to highest; the other says you should pay off debts from highest APR to lowest. 

If you’re trying to pay off credit cards, student loans or other debt, cutting your interest rates down can help. With an app like Tally, for example, you can trim your credit card interest rates

Balance transfers and refinancing are also options you might consider. If you’re paying more in student loan interest than you’d like, for example, you can check your rates with Earnest to see if refinancing could save money.

Using windfalls, like tax refunds or stimulus checks, to pay down debt could also help. 

The end goal is to get rid of your debt as soon as possible so you have more money to save. 

8. Try a no spend challenge

If you’re struggling to get the hang of living below your means then a no spend challenge could jumpstart your efforts. 

With a no spend challenge, you make a deal with yourself that you’re not going to spend money unnecessarily for a set time period. 

For example, you might try a no spend week. Or you may choose a no spend month if you think you can commit to only spending on essentials for that long. 

The idea is to help you prioritize your spending so nothing gets wasted. This could be a huge help if you’re still trying to sort out needs vs. wants. 

Related post: 10 Secrets for Crushing a No Spend Challenge

9. Increase your income

If you’ve tried all the steps on this list but you still can’t seem to live below your means, then you may not have a spending problem at all.

Instead, you might have an income problem. 

But the good news is, there are things you can do to fix that. For example, you could:

To me, starting a side hustle is the easiest option. 

Getting more hours or getting your boss to agree to a raise can be tough. And juggling a part-time job on top of a full-time job just may not be realistic for you. 

Side hustles, on the other hand, can offer flexible ways to make money. There are side jobs you can do online from home and ones you can do offline. 

The key is finding ways to make money that work for you. 

If you need some side hustle ideas, check out these posts:

140+ Legit Side Hustle Ideas for 2021

30+ Ways to Make an Extra $1000 a Month Online (or Off)

10 Side Hustles That Pay $2000 a Month (or More)

And be sure to pick up your free Side Hustle Starter Kit in the resource library!

Final thoughts on how to live below your means

Making an effort to live below your means can transform your finances in ways you might not even expect. 

When you get in the habit of spending less than you make, you’re giving yourself control of your financial life. And that’s really invaluable if you’re trying to save and build wealth. 

Need more money tips? Read these posts next:

How to Live Below Your Means

About Rebecca Lake

Rebecca Lake is a Certified Educator in Personal Finance, freelance writer and homeschooling single mom of two. Since 2014, she's paid off nearly $100,000 in debt and grown her net worth to seven figures. Her work has appeared online at top personal finance websites, including Forbes Advisor, Bankrate, Investopedia, The Balance, and U.S. News & World Report. Find out more.