Living below your means

One of the first pieces of advice for anyone who wants to start building wealth is to live below your means. But what does it means to live below your means?

What is "Living below your means"?

To make it simple, "living below your means" is you must not spend more money than you earn. So, if you spend less or equal to the amount of money you make each month from your job and other sources of income, you’re below your means.

Living below your means does not mean you can’t spend money on the things you love in order to enjoy your life. Instead, if you want to create a more stable financial future while still enjoying that occasional fancy dinner, you can make some conscious financial decisions, such as saving extra money, creating a budget, and cutting back on unnecessary expenses.

How to live below your means?

It is actually not that hard to live below your means. The most important point here is to know how to prioritize all the things in our lives. The first step that I would recommend is to list down all your needs and wants. Those monthly bills, such as electricity and water bills, groceries, mortgage, etc are considered needs. The rest of your expenses should be more of the wants, especially eating outs, movies, Netflix, that cup of Starbucks. These wants are the ones that you would really need to think through if you really want it. A reminder, I am not asking you cut all of them off. Just rethink if you really want it in your life.

The Right Equation

For most people, the simple equation for the money that runs in their lives is as follow:

Income =  Expenses

For those who would think one step further, the equation will be as follow:

Income ≥ Expenses

This is the very least of "living below your means". But if you are really conscious about your finance and future, this is not enough. Thus, you would have added "saving into the equation.

Income = Expenses + Savings

To flip it around, almost everyone will make it as follow:

Income - Expenses = Savings

While this is okay but most of the time, by the end of the month, we would have almost nothing left for savings. So, this is still not the best idea. Thus, we should change our mindset to the following:

Income - Savings = Expenses

Once you understand and able to accept this mindset, it will be easier to "live below your means".

What's next?

Now that you have read until here, you must be wondering what should be the next step that you should take. For me personally, the next step would be to start tracking your Ringgit, start saving, start a budget, start an emergency fund and start investing.