Money Management

The Importance and Benefits of Living Below Your Means

It’s one of the most fundamental principals of personal finance and yet it’s one we can all stand to hear again: live below your means. Just because you have money doesn’t mean you should spend it all. In fact holding onto a portion of your income and setting it aside is really all about preparation. From retirement to the financial health of your children, here are four great reasons why you should strive to live below you means:

You’ll be prepared for disaster

Obviously one of the biggest reasons to spend less than you make is so that you can save up money for emergencies. Sadly this is something that many people don’t do as a survey found that nearly half of all Americans would not be able to cover an unexpected $400 expense. Living below your means and being able to build an emergency fund will help ensure that this doesn’t happen to you.

You’ll be prepared for retirement

As you probably know the earlier you get started saving for retirement the better due to the nature of compounding interest. On top of the extra money you’ll accumulate by starting early there are plenty of reasons why contributing as much as you can to your 401(k), IRA, or other retirement accounts is a must. Prioritizing these savings may sting a little at first but you’ll be glad you did when it comes time to retire. Additionally, since you’ll already be used to a less extravagant lifestyle, you won’t have as much trouble adjusting to the fixed income that comes with retirement.

You’ll be prepared for a raise

This may sound strange but in all too many cases people end up in worse financial shape after getting a raise than they were before. In most cases this is because they get into the mindset of thinking that they can splurge more or can suddenly afford previously unattainable items since they’re making more. However, if you’re comfortable living on less than you make, that temptation to “upgrade” when you start to make more will be reduced. Although a celebratory dinner or vacation may be in order, think of your raise as getting more money to put towards retirement or your child’s education.

You’ll be prepared to teach your kids about money

For parents perhaps the most important reason to practice good financial habits is so that you can teach your children to do that same. Setting an example is paramount in helping your kids succeed after they leave the nest. While they may sometimes wonder why or even complain about the cool things their friends and classmates get to do that they don’t, in the long run, they’ll thank you for the wisdom you’ve instilled in them. As an added bonus you also won’t have to worry about them asking you for money either.

Everyone knows that they should live below their means but not everyone stops to think of why. There’s a good reason that the saying is so ubiquitous in our society — it’s good advice! Living modestly and being prepared for what life throws at you is far more important than having the latest and greatest. Keep this in mind as you’re creating your budget and allocating your income.

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