Live below your means and live the life of your dreams

Finding ways to make money is only half of the equation.

Once you have decent streams of income, it’s just as important, if not more, to find smart ways to manage them.

58% of Americans are living paycheck to paycheck. But if you want to stop relying on monthly earnings for the rest of your life, then it’s time to think about building your wealth.

Build your wealth

Building wealth is a simple concept and requires two elements: income and expenses. Incomes are money coming in, and expenses are money going out.

Think about incomes and expenses as two sides of a balancing scale. When you spend as much as you are earning, then you have a perfectly balanced scale. We don’t want that — we want to tip the scale slightly so that our incomes outweigh the expenses.

Now tip the scale every time you receive a paycheck, and you will accumulate wealth through time.

Tip the scales in your favor

Living below your means means working to minimize the expenses side of the balancing scale.

It sounds simple in theory, but many people struggle to reduce their expenses. Cutting down your Starbucks spendings usually isn’t enough to make you a millionaire.

It’s unfair to tell people to live below their means when they already struggle with making ends meet.

This is why the income side must be taken care of. Maximize your current salary, find extra streams of income, and grow those earnings.

It’s a constant battle of the weights pulling on each side of the scale. But if you follow the rule of allowing your incomes to exceed your expenses, then you’re already winning half of the battle. The other half is just repetition.

Are you ready to tip the scale in your favor?

Here are three strategies that you can follow to help you minimize unnecessary expenses and build your wealth over time.

Read also: How to spend less and make more money

I. Small gains, big wins

The book Atomic Habits discusses the concept of “aggregate of marginal gains.” It proposes that if you improve just 1% in every area, then those small gains will add up to a substantial improvement.

If we apply this principle to building financial wealth, then we can interpret this as making small changes to our spending habits. Instead of eliminating some expenses altogether, we can reduce each area of our spending in modest amounts.

For example, instead of cutting down your budget for eating out in half, you can trim a few your expenses in every category: some in groceries, some in travel, some in personal expenses, etc.

With this strategy, it’s hardly even noticeable that anything in your lifestyle has changed at all.

II. Understand an object’s worth

Have you ever encountered a situation in which you think you needed to buy something but later realized that it was just a poor decision?

Don’t worry. It’s common. It happens.

But there is a way that you can avoid financial regrets like this.

Sometimes, it’s hard to comprehend what something is worth. Is a $20 Uber ride worth it? Is this bag worth $100?

Our understanding of the value of money is based on conditioning. If we were brought up frugal and are always looking for discounts, then it’s easier to walk away from a large purchase. If we watch TikTok influencers flaunt their designer bags all day, then we might be swayed to justify a hefty expenditure.

Using money as a comparison can be deceiving. Instead, find a type of measurement that assesses something’s value more objectively, such as time and effort.

❌ Don’t ask yourself:

Is the thing I’m about to buy worth the amount of money that I’m spending?
✅ Do ask yourself:

Is the thing I’m about to buy worth the number of hours that I had to work for it?
Is the thing I’m about to buy worth the effort that I put in?
Here’s a free expense tracker that converts each purchase into hours worked.

Read also: Three money rules I followed to avoid going broke again

III. Understand what makes you happy

I’m far from a minimalist in pretty much every aspect of my life, but I’ve come to find that embracing some minimalist values can help build a healthy financial mindset.

Minimalism emphasizes the philosophy that less is more.

There’s nothing wrong with buying things that make you happy. But by adopting a minimalist mindset, you might just find it easier to avoid overspending on unnecessary things.

Think about how much of our expenses go toward acquiring possessions.

We buy houses, cars, clothes, furnitures, electronics, etc. For some people, these purchases can add great values to their lives. For some, they simply buy what they think will make them happy.

Here is a challenge for you. Find out what really makes you happy. Is it a big house, a nice car, and luxury clothes? (Mind you, there’s nothing wrong with that!) Is it pursuing your hobbies? Is it hanging out with friends and family?

Once you find out where you find joy, it becomes much more apparent what are simply distractions.

CONTRIBUTED BY Amy Huang

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