How to Successfully Live Within Your Means

The Most Important Step to Debt Freedom

Being financially responsible is important for your health and your financial life. To "live within your means" means that what you spend each month is less than or at least equal to the amount of money you bring in each month. For many people, it’s a lot easier said than done.

Credit cards, loans, savings, and even emergency funds allow you to buy more things than your income would ordinarily allow. Unfortunately, that kind of lifestyle isn’t sustainable and, at some point, reckless spending will catch up to you. Learning to live below your means will help you avoid financial ruin and find the peace that comes with financial freedom.

Know How Much You Make

Woman with a calculator and notepad filling out bills on the couch
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If you want to live within your means, you have to know what your means are. Simply knowing your annual salary or hourly rate isn’t enough to help you live below your means. You need to know the net income that appears on your paychecks—the amount you actually have to spend.

You also need to know how often you get paid so you can better match the timing of your income with your bills. Since most of your bills are paid monthly, you’ll need to know how much you get paid every month. Multiply weekly paychecks by four, and bi-weekly paychecks by two, to get your monthly pay.

Spend Less Money Than You Bring In

Once you know how much you make, you can focus on reducing your spending to fit your income. If you don’t have one already, create a budget to plan your expenses and use it to keep your spending on track. If you’ve already tried budgeting and it didn’t work, try it again. Often you just need to make some minor changes to your budget to get it to be effective.

If you want to keep the process simple, try a method called "backward budgeting." Write down your income, then start subtracting each expense you pay each month. If you get to a negative number, then you're spending too much and need to cut back.

Boost Your Income

If your expenses are at the bare minimum and you’re still spending more money than you make, then you may need to boost your income. If you typically get a tax refund, you may be able to adjust your tax withholding to get more money in your paycheck. You should also make sure you’re signed up for the right health, disability, and other company-provided benefits. Finally, you may need to get a higher-paying job or even a second job to help make ends meet. Remember, your goal is to live within your means and gain financial freedom.

Stop Relying on Credit Cards

Using credit cards to pay bills or cover other living expenses is not a way to live below your means. When you plan your budget, completely rule out credit cards as a way to make ends meet.

Credit cards are unreliable since your credit card company can decrease your credit limit or even close your credit card at any time without warning. If you're charging more than you're paying, you'll eventually run out of available credit. Any interest you have to pay will make it that much harder to live within your means.

Don't Try to Keep Up With the Joneses or the Hiltons

Resist the pressure to have the same material things as the people around you or, worse, the people on television. You may be able to use credit cards and loans to fake wealth for a short period of time, but you’ll pay for it later. You’ll end up paying more, since interest is added to your balance each month.

Save Up for Purchases Instead of Putting Them on Credit

People often use credit cards for large purchases they can’t entirely afford, such as a new television. Instead of paying for these purchases on credit, put aside some money each month until you’ve saved up enough to buy it outright. If you can’t afford to save up for the purchase, then you can’t afford to buy it.

Build an Emergency Fund

Having savings that are dedicated to emergencies will keep you from resorting to credit cards whenever you have a financial emergency. An emergency fund of three to six months of living expenses is ideal, but starting out with $100 to $200 will help with some of the minor emergencies from time to time.

Use your budget to figure out what you can afford to save each month, then set up an automatic transfer to make it easier to reach your savings goal.

Keep Your Financial Future in Sight

If you're accustomed to overspending, getting your budget back on track may sound overwhelming. But these simple first steps will help you make progress toward your goal of spending under what you make. From there, you can begin saving for your future instead of worrying about how to pay the bills.

Frequently Asked Questions (FAQs)

What does it mean to live below your means?

Once you start living within your means and are able to pay your bills with the money you have, you can start coming up with ways to live below your means. This means that you have money left at the end of the month, after you pay all of your bills. You can accelerate your savings and build wealth by living below your means.

What is a budget I could use to live within my means?

Try the 50/30/20 budget. It allocates 50% to needs, 30% to wants, and 20% to your financial goals. While you learn to live within your means, you may be spending 100% on needs, but once you get accustomed to doing that, you can start saving and adding some wants into your budget.

How will an emergency fund help me live within my means?

Even the best budget can be derailed if an emergency comes along, and there's no money to pay for it. That is usually when you break out the credit card or apply for more debt. With an emergency fund, you'll have the money to fix your car when it breaks down.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Consumer Financial Protection Bureau. “Can My Credit Card Issuer Reduce My Credit Limit?

  2. Consumer Financial Protection Bureau. “I Received a Notice From My Card Issuer Telling Me That They Were Closing My Account and That I Cannot Use My Credit Card Any More. Can They Do That?

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