Everywhere you look, people are offering up financial advice. There are nuggets of wisdom strewn all about, yet most people are hesitant to actually act on any of it, instead falling back into the same old habits that keep us living in a cycle of paycheck-to-paycheck existence. You know what we’re referring to: budgeting, tracking spending, etc. — the basics of personal finance, really. But there’s one huge element to keeping your finance in order that is likely the most difficult to actually implement in our daily lives.
And it’s the one central point that ties everything else together. It’s living within, or below, your means.
This isn’t a new concept, but it’s easy to gloss over, and incredibly simple to overstep your self-imposed boundaries and spending restrictions during day-to-day life. For example, your coworkers want to go to lunch at a somewhat pricey restaurant. Being the frugal individual that you are, you brought some pasta from home that you had planned to microwave and eat at your desk. But a sandwich and soup does sound better, and it’d be much more fun than watching YouTube.
For a lot of people, dropping ten or fifteen dollars on lunch isn’t that big of a deal. But these decisions, in aggregate, can lead to much more spending than anticipated. And lunches are the easiest traps to fall into. Think about what else you might go out and buy, knowing full-well that you can’t afford it, or at least shouldn’t splurge on. New $60 video game? Yeah, you want it. You can just put in on the credit card.
Or how about a weekend away with your significant other? That’s gas, lodging, food, and entertainment — all things that you wouldn’t have had to pay for had you just opted to spend the weekend in a more frugal fashion. Of course, living frugally isn’t fun. Who wants to spend the weekend canning pasta sauce when you could be out hiking, swimming, or skiing?
This is when a lot of us need to come to terms with the harshness of reality. Plenty of us can afford a weekend away once per month, or perhaps even more frequently. But many of us can’t, even though we want to believe we can. So we do it, and defer the costs for another day.
Living within or below our means is tough, and the most difficult part of it is trying to figure out what exactly our “means” means. Putting your finances on paper, and having to pick and choose which little luxuries we can afford ourselves may not be fun, especially if you’re in a much tighter position than you originally thought. It can mean a total disruption of our daily routines — whether it’s brewing our own coffee instead of stopping at Starbucks every day, or taking the bus a few days a week to work instead of driving.
One thing about making those changes is that they may be uncomfortable, or at the very least less fun in the short-run. But when you look at your finances through a wider lens, relatively small cutbacks can have big effects in the long-run. This is what really affords you financial flexibility later in life. By taking that money you spend on gas or coffee and throwing it into savings accounts, IRAs, or mutual funds, you’re setting yourself up for a much easier time in your later years.
Again, living frugally, or at least within your means, is not a new concept. It’s been a core tenant of Warren Buffett’s philosophy for years. He famously still lives in a modest home in Omaha, and drives a car that most billionaires would scoff at.
There are other relatively wealthy people who have adopted the mantra of frugality as well. One example recently in the news is NFL player Ryan Broyles, who, despite being 27 years old and working on a $3.7 million contract, lives on approximately $60,000 per year.
That takes discipline. Especially at 27.
But Broyles and Buffett live below their means, and that’s the key. So, take stock of your current situation. Figure out what you can really afford, and which luxuries you can live without. Instead of small pleasures throughout the day, invest that spare cash into something that will grow. Small cutbacks can lead to financial freedom, and it may be a lot easier than you think.
Follow Sam on Twitter @SliceOfGinger