In the post “Stop Living Paycheck to Paycheck,” I brought up 5 different ways people get trapped in a cycle where they just make ends meet and never seem able to get ahead. They aren’t the only reasons, but they are pretty common.
This post is about practical solutions and ideas to try to get out of the cycle so that you can gain some forward momentum. I am basing my suggestions on what has worked for me over many years, and dealing with all manner of life events. Also, I have researched extensively what experts and other finance writers suggest.
The reason I feel that I can add something new to the great advice already out there is that I do not see many of them paint a realistic view of what I went through. I look at the budget examples and tips, and they would not have worked in my case. I am guessing some of you have felt that same frustration. Similarly, my examples and ideas won’t match some people’s situations, but I hope they are useful to a lot of you that are struggling like I have.
Most experts agree you need to get to the point where you have the extra room in your budget to have an emergency fund, to save up for purchases, and pay off debt. I agree, and refer to that as ‘living below your means.’
However, they rarely seem to offer strategies to get to this point, or the strategies don’t work for those who have already cut back everything, don’t have anything left to sell, and can’t work much more than they are. People who, like me, saw a debt snowball as a fast accumulation of more debt, not a debt reduction strategy.
10 Ways to Live Below Your Means
1. Make radical changes. I stood way back, way back, and looked at the big picture. When I got to the point where cutting some expenses wasn’t going to be enough, I made radical changes. I sold my home, a vehicle, moved to a less expensive area, and switched jobs to work in a more stable industry. My family has lived rent free for a few months in a falling apart home in exchange for making repairs and painting. We have switched to wood and pellet stoves to save on heating costs, and often use salvaged scrap wood for fuel. My husband quit a job he had worked at for 20 years to start his own business in an attempt to improve income potential.
2. Borrow much less than you qualify for. I know experts say not to borrow at all, or that you should not finance a home more than 15 years, or a car for 3 years. This is not realistic for many of us. However, we need to borrow less than we quality for. Why? Because the lender has already calculated the highest amount we can just afford. Borrowing that much pushes us to our budget limits with no padding. If you buy a home for the top amount you qualify for, what happens when you move in and find your utilities are going to be higher, or you used your savings for a down payment and now don’t have an emergency fund if something needs to be repaired in the home. We purchased a dilapidated fixer upper last year for well below the amount we qualifies for, so we could both add value and afford the cost of repairs.
3. Expect the unexpected. Every month we have things come up with no warning. So much so that I am considering just making it its own category. This is another area where I disagree with the experts who say to cut up credit cards when you still have almost nothing in savings and no wiggle room in your budget. I’ve had many months with well over $1000 in emergencies, and it wasn’t because I saw a leather couch on sale or needed a vacation. I actually get a little put off when they say those things. They also never say what to do if you stop using credit and then have real emergencies one after another. Instead I believe in being prepared for the unexpected by having budget categories for car service and repairs, vet care, and even things like school activities and office supplies (for when you need ink, your hard drive crashes or printer dies). I also appreciate having credit available for an emergency situation, along with building an emergency fund.
4. Use credit responsibly. Having credit does not equal having debt. This is an area where I really differ from some experts. I never got into debt because “credit cards are evil,” or because I thought they were free money. Nor do I think it is impossible to hold credit and resist using it irresponsibly. In fact, I find that very condescending. I have used credit for decades and never saw it as an opportunity to spend more than I knew I could afford. Moreover, it has been critical during times when there were real emergencies. With my good credit, I have enjoyed lower insurance rates, activation fees waived, purchase protection, and enjoy well over $1200 per year in cash back, all without giving the credit card company a dime.
5. Curb impulse buying with a “category freeze.” Instead of the popular “spending freeze,” which requires a lot of planning and commitment to not spend any money for a month (aside from bills), I do a category freeze. I choose a budget category such as clothes, restaurants, or household items and do not spend on purchases in that category. I find this much easier to commit to and less stressful than trying to freeze every purchase. It is more realistic that I will be able to do it, and I can focus on one area at a time to find creative alternatives to spending.
6. Delay purchasing. This is one thing I have learned from my category freezes and from times when we just don’t have the money to get something we want or need. By delaying making a purchase we often come up with a less expensive option, a different way to get the item, or even find we can go without. When I told my husband we couldn’t spend the money yet to get a couple tools he needed, he found other ways such as bartering services to trade for them. I often delay grocery shopping for a couple days so we use up other items we have stocked and the non-preferred snacks get eaten when we run out of everyone’s favorites.
7. Review fixed expenses regularly. These are housing, utilities, cable, internet, car insurance, and other monthly bills that generally stay the same each month. Even though I think they are as low as they can be, every so often I look at each account to see if I am missing any savings opportunity. Nearly all my bills are now paperless and automatically withdrawn from my checking account, so it is important to still go online and check on the accounts. Recently I found that I could lower my cell phone bill by reducing the data plan as we weren’t using as much as we predicted. I also noticed an error in our car insurance bill that had gone on for several months before I questioned it, so we were credited the difference.
8. Cut spending even more. For those in a tough place financially, it can be hard to fathom cutting back even more. I understand. I have yelled back at the articles that suggest making coffee at home instead of Starbucks, or getting your hair highlighted less often. I don’t eat out, take vacations, get my hair or nails done, go to movies, smoke, drink, gamble, tan, dry clean clothes, and almost never wear makeup. I shop at thrift stores, make food from scratch, meal plan, make cleaning and personal care products. I don’t even know who the Jones are. Where am I supposed to cut back?
I like challenging myself to find ways to cut back more. Last month we finally cut out the cable and land line, and are using a Roku streaming device. I have stopped running out to the store when we are out of something we think we need, to see if we can go without. For instance, if we run out of milk, we can have tea instead of coffee. I am becoming adept at swapping ingredients in recipes for what we have on hand. It is hard to run to the store for an item or two and not pick up other things you notice you need. I am trying to keep homemade and less expensive sweets and snacks on hand to keep from buying packaged or convenience store items when a craving strikes. I use inexpensive fillers — such as brown rice, beans and pasta — to stretch meals, and buy only inexpensive meats on sale. When I do buy something a little more expensive, such as steak, pork chops or shrimp, I buy it on sale and it becomes a treat for us.
9. Trade, share and “group buy.” This is something that I would like to explore a lot more. Each of us has such different skills, talents and situations. In researching how people used to live, I find over and over again examples of families and communities working together. Today, we tend to be much more isolated and independent, but I think there is tremendous opportunity to collaborate and help each other save on costs. Parents can hold kids clothes and toy swaps, or trade child care. One person could offer a custom made cake for alterations on their clothing, or lawn care for car service. I’d like to purchase meat in bulk from a local farm with another family. Could you trade pet or house sitting for haircuts or yard work? Be creative and think outside the box.
10. Increase your earning potential. When you cut back as much as you can and still have no room for savings, you have to look at the income side of your budget. It may be easier to look at it as a temporary need to earn more until an adequate emergency fund is built up. If so, can you work extra hours or add a seasonal job for a couple months? If you are being underpaid, can you discuss with your boss what you can do to get a raise or bonus, or change positions? Maybe you need to check out other job opportunities, or switch industries like I did when companies kept laying us off in my previous field. Would finishing your degree help, or taking some courses to enhance your range of skills? Really step back and look at what may be stalling your income potential.
I hope these ideas give you some food for thought as you work on living below your means and saving for a more financially secure future. I love hearing your comments, stories and suggestions so keep them coming! It is great when we can share and learn from each other.