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Financial Independence Starts with Living below Your Means

Weather you earn $50,000 or $200,000 you cannot achieve financial independence without spending less that you earn.  You must spend below your means to have money left to save and invest for the future.   This is a concern for individuals at all income levels because there is a tendency to spend up to your level of income.   As income increases you may become more confident to take on more debt, increase your expenses and make more extravagant lifestyle choices.  With a higher income you may have a bigger house and a fancy car, but you may be no closer to achieving financial independence.

To successfully live below your means, identify a clear picture of what you want to achieve.  Set financial goals to provide you a sense of purpose and motivation to save money.  Spending less than you earn doesn’t mean you can’t enjoy life and have nice things.  It forces you prioritize and be intentional about your spending to acquire what is truly important in the short term while saving for long-term goals.

To live below your means, gain an understanding of how much it costs you to live.   Evaluate what portion of your spending is non-discretionary and discretionary.  Create a budget that includes essentials, high priority non-discretionary spending and savings.  Automatically deposit or invest your saving first so it’s not readily available to spend.

To spend less than you earn, it’s helpful to track your spending and avoid unnecessary debt.   Focus on yourself and don’t strive to impress or compete with friends and neighbors.    Plan and save for major expenditures, maintain an emergency fund and save at least 15% of your gross income.

The two most significant expenses for most people are housing and transportation.  Keeping these expenses below what you can afford will be a huge step toward living below your means.   When you are just starting out, this may require living with roommates or renting a smaller apartment and buying an older used car.

As your career progresses and income increases, avoid increasing your expenses in proportion to increases in income.  When you receive a raise or promotion put at least 50% of the increase into savings.   When you buy your first home or are ready to move up to a nicer home, select something that you can easily afford while putting money away for the future.   

Once you are earning a good living it’s easy to get caught up in a more lavish lifestyle.  Avoid the temptation to go overboard on luxuries.   Focus instead on saving a significant portion of your income.  Don’t become tied down with fixed expenses associated with a big house and expensive car payments.

Living below your means can provide you with greater financial freedom and flexibility to make career changes or seek out new opportunities.  Financial freedom can also result in less stress, more confidence, improved self-esteem and a happier life.