Just about every personal finance expert will tell you that living below your means is essential if you truly want to build wealth. After I show you why this is so, I’ll give you some simple tips so you can live below your means too!

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Before I quit my job to become a full-time blogger, I spent a year working in the finance industry so I could gain a better understanding of financial products and services.
During that time, I noticed that the people I came in contact with generally fell into one of three money-management categories or types:
- People who are good managers of their money. They have well-padded accounts and low (or nonexistent) credit card balances.
- Millionaires who are amplified versions of the first type.
- People who have no idea what they’re doing with their money. Their accounts consistently stay empty or near-empty, and their credit card balances hover dangerously close to their credit limit.
I spent a whole year observing people and their financial habits, looking into their accounts all day every day, and I came away with surprising insight.
There are definitely exceptions to the rule, but in general, the factor that determined which of the three money-management categories people fit into is whether or not they live below their means.
Contrary to what you might think, it didn’t even matter how much money they made! Trust me, I saw several people regularly deposit a significant portion of their small paychecks into rapidly growing savings accounts.
As I mentioned in this post, it doesn’t matter how much money you make; it only matters how much money you can keep. And that, my friend, is what we’re going to talk about today. Let’s talk about living below your means!
Looks Can Be Deceiving: The “Living Below Your Means” Concept in Action
You’ve probably heard it said before that the people who look rich usually aren’t rich, and that the people who are rich fly under the radar by looking like your Average Joe.
I didn’t know how true this was until I spent a year working in the finance industry.
Note: I learned a lot by working in the finance industry, but I learned so much more from Dave Ramsey! I highly recommend you read his book The Total Money Makeover if you want to improve your finances. It will change your life!
Millionaires Among Us
In most cases, the people who have their finances figured out (millionaires and almost-millionaires) live below their means.
They drive unassuming cars (sometimes older models) and wear average clothes. They look tidy but not overly accessorized. They aren’t impressed by designer brands, they don’t spend money on frivolous things, and they don’t flaunt their possessions.
Instead, they’re happy with average things. They can certainly afford a Mercedes or two or three, but they put their money in a savings account instead. They’ve clearly mastered the art of living below their means!
I often think back to a particular instance when I had to do a double-take after looking at one guy’s accounts.
The man I was helping was eating a cheeseburger while sitting in the drive-thru in an old, beat-up car. He was wearing ratty clothes, and he honestly looked like a slob.
You can imagine my surprise when I glanced at his accounts. Quick math in my head told me that he had over one million dollars in his deposit accounts alone! And I’m pretty confident he had more stashed away in some investment accounts elsewhere.
I couldn’t believe it! I immediately felt guilty for assigning this guy to a particular income category based solely on his appearance. But my first judgement reiterated what I already knew: millionaires walk among us every day, and we usually have no idea that they’re there because they don’t look rich.
Fabulously Broke
On the other hand, I can say with 98% certainty that the guy driving that shiny new Camaro is probably broke.
That’s because broke people often look flashy. They drive the newest model sports car and show off name-brand clothing. They’re quick to display their newest piece of technology, flaunt their designer sunglasses, and brag about glamorous vacations.
Even if they make a lot of money, they withdraw almost every dollar from their bank account so they can spend it on new things. Financed things, if we’re being totally honest.
Related: How to Spend Less Money When Your Spending is Out of Control
You know, we’re so ingrained to believe that the people who look rich are rich.
Because of this innate belief, I was constantly surprised to see rich-looking people with maxed out credit cards, too-big mortgages, multiple vehicle loans, and empty savings accounts. What I saw on the computer screen in front of me didn’t match the “you look rich so you must be rich” concept.
At that point, I saw with my own two eyes what finance gurus have been saying all along: living below your means is the only way to build wealth. After all, how can anyone expect to become a millionaire if they spend every dollar they earn?
Benefits of Living Below Your Means
In addition to the obvious benefit of having excess funds to build wealth by saving and investing, some other benefits of living below your means include:
- Not worrying about being able to pay your bills
- Not having to keep up with the Joneses (because let’s be honest, that’s exhausting work!)
- Being able to save up for things that truly make you happy (family vacations, college for yourself or your kids, paid-for Christmas gifts, etc.)
- Being able to leave a job you hate
- Having excess funds to save a padded emergency fund
- Having excess funds to pay off your debt early
I don’t know about you, but those things sound pretty good to me!
How to Live Below Your Means
If you’d like to start living below your means, there are a few things you should do. Remember, the ultimate goal is to spend less money than you earn. To do that, you should:
Evaluate your current spending habits
Track your spending for a month to see where all of your money goes. If you’ve never done this before, then you may be surprised by the results! You may not realize that you spend a couple hundred dollars on entertainment, another couple hundred at restaurants, etc. Purchases add up quickly!
Cut out unnecessary expenses
Once you see where all of your money goes each month, cut out the things you don’t need or care about. Do you really watch enough TV to warrant paying for cable, Netflix, AND Hulu? If you don’t get your money’s worth out of something, then stop paying for it. You probably won’t even miss it!
Related: No-Spend Month Results: What We Learned from Our First No-Spend Challenge
Create a budget every month before the month begins
Creating a budget forces you to decide up front where you’ll spend your money in the upcoming month. If you’re new at this, you can check out a post I wrote that teaches you how to create a budget.
You can also download my free budget printable here.
Once you make a budget, it’s essential that you stick to it. I’ve found that the best way to stick to your budget is to use the cash envelope system. It forces you to stay within your budgeted amounts so you don’t overspend!
Related: 7 Budgeting Mistakes You’re Probably Making and How to Fix Them
Pay off your debt
According to Dave Ramsey, if you can’t afford to pay cash for the whole thing, then you can’t afford it. This applies to anything and everything except for your house.
Related: Want to Take Charge of Your Finances? Here’s How Dave Ramsey Can Help!
From this point on, do not take on any more debt! Credit card debt and student loan debt (see note below) included.
Now, if you currently have debt, take a good look at it.
- You need a place to live. But is your mortgage more than 25% of your take-home pay? If so, it’s time to downsize and purchase an affordable house, preferably by saving up enough cash to make a 20% down payment on a 15-year fixed mortgage.
- You need a reliable car. But are you paying for a brand new vehicle? If so, it’s time to sell it and purchase a reliable used car, preferably by saving up enough cash to pay for it debt-free.
Dave Ramsey recommends using the debt snowball method for paying off your consumer debt (all debt except for your house). Here’s how you do it:
- Order your debts from smallest to largest.
- Make the minimum payments on all but the smallest debt.
- Focus all of your energy on paying off that smallest debt as quickly as possible.
- Once that debt is paid, move on to the next smallest debt.
- Repeat until you pay off all of your consumer debt.
Working from the smallest debt to the largest is a mental thing. Getting that quick win by paying off a small debt gives you the push and motivation you need to tackle the rest of your debt.
Note: Education is very important. And in some rare instances, student loans are the only way to go. BUT, that does NOT mean you should rack up an enormous amount of student loan debt either for yourself or for your children. Debt is not smart. Period. Instead, choose a school where you can afford to pay all or most of the tuition as you go.
Find new ways to save money
I’m all about finding new ways to save money. It’s almost like a game for me to see how much money I can save! If you need some ideas to help you save money, check out these posts:
- 30 Ways to Save Money So You Can Reach Your Financial Goals
- How We Cut Our Spending to Maximize Our Student Loan Payments
- 7 Free or Cheap Ways to Exercise on a Budget
- How to Prepare for a Successful No-Spend Month
And if you’re worried that saving money will make your life boring, be sure to read the post I wrote about how to save money without feeling deprived. Trust me, your life doesn’t have to feel boring at all just because you’re living below your means! 🙂
Put your excess funds toward something worthy
This step has its place during every phase of your financial journey. If you’re a Dave Ramsey fan, you might recognize this list as his 7 Baby Steps!
- Build a starter emergency fund. $1,000 is a good place to start.
- Pay off your consumer debt (everything but your house) as quickly as possible.
- Build a fully-funded emergency fund. 3-6 months’ worth of expenses is a good place to start.
- Invest 15% of your household income in your retirement accounts.
- Save for your children’s college (if this applies to you).
- Pay off your house.
- Build wealth and give generously. This is the time to really have fun because you’ve earned it!
Wrapping it Up
Living below your means is absolutely essential if you want to build wealth and achieve financial freedom. I saw this truth in action every day when I worked in the finance industry. I saw that despite what appearances suggest, looking rich and actually being rich are two completely different things.
If you want to be one of those unassuming millionaires one day, then you need to evaluate your current spending habits, cut out unnecessary expenses, create a budget every month before the month begins, pay off your debt, find new ways to save money, and put your excess funds toward something worthy.
When you do these things, you’ll be well on your way to building wealth and achieving a life of financial freedom!
Other Posts You May Enjoy
- How to Know Which Financial Advice to Follow
- 6 Tips to Score Big at Thrift Stores (My Best Thrift Store Shopping Secrets Revealed!)
- Intentional Goal Setting: How to Turn Your Big Dreams into Reality
- 9 Personal Finance Resources You Need in Your Life
What about you? Have you mastered the art of living below your means?

Also, if you found this post helpful, feel free to share it or pin it for later!
Maganiko Msabi says
Your articles are educative and challenging thanks a lot
summersebastian says
Thank you!
Maganiko Msabi says
it is a wonderful knowledge to acquire and apply as knowledge is power and this gives a financial intelligence to apply in my daily business undertaking. i hope this will improve my business
Rebecca @ Unexpectedly Domestic says
Wow, what a great post, Summer! I love the idea that it’s how much money you get to keep, not how much you make that is the difference between becoming wealthy and not. You really hit the nail on the head here. Thanks so much for writing such a great article! Pinning it now!
summersebastian says
Thank you, Rebecca! I’m glad you enjoyed the article! 🙂