Wednesday, May 13, 2015

To Be Financially Fit - Live Well Below Your Means

One of the keys to being financially fit is to “live well below your means.”

So, what does that mean?

  • You have fewer expenses than income.

  • You have less stress (financial and emotional).

  • You have excess money to apply to your priorities.

And, what does that look like?

The expenses of someone who’s on track to be financially fit should be broken-down as follows:

10% - Pay your future. Immediately (automatically) put ten percent of your income into retirement. And not only move this money to your retirement account, but invest the money! (More to come on the retirement and investing topics.) [One note – If you have high interest credit card debt or no emergency fund, use this ten percent for those priorities first.]

20% - Fund your priorities. Have the financial means to reach your dreams. Allocate twenty percent of your income for your priorities. This may include paying off your debt, building a down-payment for a home, donations and charities, traveling the world, or reaching early financial independence!

70% - Live your life. Use the final seventy percent of your income to fund your immediate expenses and daily life. This includes any expenses that do not fall into the retirement or priority categories above.

You may not be at this breakdown yet, and that's okay! It will take time, work, and commitment. (Use the Exploit Your Finances, Exploit Your Life process to get started.)

Impossible! I can’t live on only 70% of my income!

I hear you yelling at me. I’m ridiculous and I’m sure your commenting now…but listen, IT'S POSSIBLE.

Yes, this may not be your current reality, but you can make this a goal. Just start the process and see where you end up – even some forward progress is positive, and momentum will build.

Many people live on much less than 70% of their income – while still enjoying their daily life. Both FrugalPortland and Mr. Money Mustache share their savings rates – 50% or more!

My wife and I also strive to only live on only 50% of our income, while funding our priorities of travel and financial freedom. (Most months we allocate more than 50% for our goals!)

So it can be done – it’s just a matter of the effort you’re willing to contribute.

Less Stress

Besides the obvious - more money for priorities - living below your means has other benefits, including lowering your stress level.

If you’re spending less money than you make, then you don’t need to stress out about a little financial bump in the road. For example, did you remember to budget for the twice-a-year car insurance bill (surprise!)? You can sail right over this immediate-cash-need and make up for it next month – because you have extra money!

You have a 20% cushion for those emergencies. No stress here! (Remember, forget about the 10% toward retirement, this is a must!)

You can lower other stress too - work, relationships, time.  With financial control, you can sleep better at night and focus more energy on the other stress triggers.

You’ll Be…

Following the sage advice of “living well below your means” will bring you financial success that some dream impossible.

You’ll be different from those people…

You’ll be setting a foundation for retirement (with your 10%), you’ll be enjoying life and reaching your priorities (with your 20%), and you won’t stress about your daily expenses (with your 70%).

You’ll be comfortable, financially and emotionally.

You’ll ignore the small financial hurdles and setbacks.

You’ll feel positive about your financial future.

And, you’ll have started on your path to being financially fit!

Do you currently live below your means? By how much?


  1. […] The first trait is to “live well below your means.” […]

  2. Good tips, though those high savings rates often go along with high incomes, and it can take time to build up to them! In our case, we definitely started small -- basically just saving a few dollars here and there -- but over time we avoided lifestyle inflation, and kept saving more and more as our income went up. We think that's our very best advice to others: keep your cost of living low even if you reach baller income levels. Then the saving becomes easy over time, even if it seems daunting and impossible at first.

  3. Completely agree that it can be easier with higher incomes - though most often those individuals are also already spending more. Great notes for everyone - start small, control future costs, and the rest will come with time. Thanks for sharing!