Living below your means

The ability to live steadily below one’s means is the key to amassing capital which, if shrewdly invested, is also the key to setting you free financially speaking.

It’s a remarkably simple equation when expressed as simply as that but is, nonetheless, very true.

But it’s easier said than done, of course, especially for young couples embarking on their lives together who have many wants and many needs. The trick here is to separate out those things you actually need to survive and function in life – from those you simply desire. If you’re on a tight budget, you sometimes have to learn to live without those things you simply want – and to concentrate on those you need.

In this way, living below your means is distinctly possible for most people and if you can continue to do so, whatever your joint incomes may be, you will steadily build capital.

Once you get into this way of thinking, the process of living below your means can actually be quite good fun. Simply buying whatever you desire whenever you desire it isn’t good for the soul. Consequently, the inverse is often true; if you work and save for the little luxury you want and are patient in acquiring it rather than simply borrowing money to fund the purchase, you usually appreciate it a whole lot more.

A good rule of thumb is to try and set aside 15% of your net income each month, which you don’t touch, over and above life’s essentials. This may not always be possible as there are always little emergencies to cover – but as a general rule, 15% is a reasonable target for most couples with a wise weather eye on the future.

The other side of the equation is equally important, of course – i.e. what do you do with the capital you manage to steadily acquire through living below your means? Well again, if you concentrate primarily on life’s essentials, initially, this will be a great help. The first and most obvious thing to invest in is bricks and mortar. A recent study by HSBC has demonstrated that those people managing to begin the process of buying their own house at an early age generally do a lot better in the long run. There is more information found here on the report – and the wisdom of buying one’s own home.

Additionally, it’s wise to invest in a pension and stocks and shares over a long period and taking a generally conservative, value-led approach. If this isn’t something you feel confident in doing, then seek expert advice and drip-feed money into safe investments over long periods. This will be an enormous benefit in the long run and stock markets generally out-perform property over long timescales.

Living steadily below your means may seem boring to some people, but it’s actually anything but. The truth is that doing so will enable you to do far more exciting things with your life in the long run.