A Sure Way to Save a Lot of Money is to Live Below Your Means
“Income may be temporary and uncertain but as long as you live expense is constant, certain and keeps growing”
-Benjamin Franklin*
Living below means does not mean to abstain from all good things in life
The important thing is you still enjoy life, but in a different way i.e, a more responsible way that gives deep internal self-fulfilment. It just means to ensure you lead a lifestyle that is significantly below your current income level.
Expensive lifestyle is not same as being wealthy
Many people falsely equate expensive lifestyle with being rich. While being rich or wealthy is actually about the number of years you can live without earning any money. Contrary to what people may think, this way of living gives great internal comfort and satisfaction. So, for a given saving, the lower your lifestyle the more wealthy you are.
Let us say two people ‘A’ and ‘B’ have same savings (wealth) of about Rs 5 lakhs. Both are in same job, equally smart and will get same future income because their job performance is same. ‘A’ has a lifestyle that involves spending Rs 1 lakh per year. ‘B’ has more impressive lifestyle and spends about Rs 2.5 lakhs per year. Because ‘A’ has a more frugal lifestyle, he can live for 5 years without earning a single rupee. While ‘B’ can only live for 2 years because his lifestyle is more expensive. So, ‘A’ is more rich than ‘B’. Plus, because ‘A’ has more surplus he can do more investments. If done well, that can further increase the wealth of ‘A’ from ‘B’.
Most people save little or no money – even if their salaries increase rapidly or have good salaries
Most people spend whatever they receive as income. By the end of month nothing is saved, again they start spending when they receive income. In fact, many may even borrow money or use the credit card for this month’s expense that will be paid from future income. It is the case with both low and high income people.
Stop worrying about impressing others
Live a comfortable life. Don’t get sucked into the game of impressing others. Don’t chase material things and fool yourself into thinking you will be happy by having those material possessions. You may feel good for a few hours, a day or, few weeks. But your savings are permanently diminished.
You can spend a lot of money on a car and house that will impress your neighbours and friends, but you’ve actually made yourself less secure and weaker financially. All those trappings that are intended to make you feel wealthy are actually making you poor.
Why pretend to be rich, when you can just become rich instead? Stop competing with your neighbours & friends on material possessions. This competition for material possessions prevents you from saving more for a better financial future.
The key to realising this idea is to understand that real status in life is not about projecting an unreal financial image. Being financially secure is the ultimate status symbol.
The first Scientific research done on the millionaires in the US by Dr. Thomas J. Stanley of the University of Georgia. The study sponsored by Rolex found that real millionaires lived much below their means, while fake millionaires (having expensive lifestyle) had expensive lifestyle but very little wealth.
If you are looking to become wealthy or get out of debt, it is essential to live below your means. That is a suggestion that has many meanings.
Have individuality
Don’t get into blind competition with others. Don’t imitate someone’s purchase without evaluating the merits rationally.
It is not easy to be rational. There is a self serving bias, once your emotions like to possess some item your emotions will get your brain to justify it logically. Though it is not easy, it is very much possible to be rational.
Financial well being is important for overall well being
Making a decision to live below means is an important decision that leads to a successful and financially secure future. This could also give much mental peace during troubled financial times like recession, lay-offs, and at work when tensions are high.
People under estimate the impact of financial vulnerability to compound their troubles from non- financial matters. When you are not financially secure, you really get very desperate because your ability to take failure well is just not there. When you are financially well organised, it gives great internal peace, even when others ridicule you.
Frugal lifestyle is essential to accumulate wealth
This lifestyle is about making a deliberate choice to moderate your spending habits. It is not about stopping spending, but about spending a bit less than you can afford. Live a simple life, save a part of your income and this will reduce stress level and make your life closer to heaven.
Becoming wealthy is not earning more money, but becoming frugal and spending less than you earn needs to have internal comfort with your lifestyle choice. Wealthy people are good at aggressively saving money from their current income. This is one characteristic that essentially separates the wealthy from the poor.
Article Summary
- To become wealthy, you need to live below your means.
- Don’t get sucked into the game of impressing others.
- Being financially secure is the ultimate status symbol.
- Moderate indulgence instead of total avoiding any spending.
- Expensive lifestyle is not the same as being wealthy.
- Frugal lifestyle is essential for accumulating wealth.
- People who get rich are good at aggressively saving money.
- Financial vulnerability can compound your problems with non-financial matters as you have very little ability to handle even short-term financial failure.
* Original quote by Benjamin Franklin has been modified but the essence of the message is from his quote