When you live in the United States, you’re surrounded by wealth. There are millionaires in every city and billionaires in almost every state. As someone who is neither a millionaire or billionaire, it’s tempting to try and mimic many of their lifestyle choices, so you can hopefully rise to their ranks. However, aspirational wealth rarely leads to actual wealth.
How to Live Within Your Means
Of all the paths to financial success, “fake it until you make it” isn’t a strategy. You might be able to project a wealthy image for a few years, but your house of cards will eventually come tumbling down.
Aside from the few people who win the lottery or come up with a viral product overnight, most Americans build wealth with a slow and steady approach. In fact, the key to being financially successful is to live within your means so that you can save and invest.
1 – Create a Budget
When was the last time you sat down and examined your finances? Do you know how much money you make? If you were asked to name your monthly utility expenses off the top of your head, could you?
Most people don’t know what they’re making or how much they’re spending, which typically means they’re living beyond their means. The best piece of advice is to build a budget and review it each month.
2 – Know the Difference Between Wants and Needs
When it comes to shopping – for small items and big purchases alike – most people don’t know the difference between a need and a want. Figuring out that line will help you eliminate impulse buys and make smarter purchase decisions.
The best rule of thumb is to wait before purchasing something. Whether it’s a cute outfit or a brand new sports car, give yourself 24-48 hours to think about it. If you’re truly honest with yourself, you’ll be able to decipher the difference between a want and a need.
3 – Live in a Middle-Class Neighborhood
On the surface, there’s nothing wrong with living in an upper-class neighborhood or gated community. But even if you can afford the house payment, you should think twice about buying in these areas.
When you live in an upper-class neighborhood, you’re surrounded by other people who have wealth. This means they’re driving nice cars, wearing designer clothing, purchasing the latest toys, etc. It’s only human nature that you’ll try to keep up. Before you know it, you’ll be broke.
When you live in a middle-class neighborhood, these temptations aren’t as enticing. You can always choose to drive a nice car, wear expensive clothing, or buy the latest smartphone, but you don’t feel the external pressure to do so. Your neighbors are living in moderation, which – psychologically speaking – frees you up to do the same.
The most effective way to avoid debt is to stop buying things with money you don’t have. The only way to ensure you aren’t using money you don’t have is to pay in cash.
As strange as it may be in a plastic world, cut up your credit cards and start using cash for everything. Not only will this keep you on track, but you’ll also feel the sting a little more when making a purchase. Since it is true that “no pain, no gain”, this direct check on how money flies out of your hands will help you look for hacks to earn more each month.
5 – Practice Gratitude
When you really drill down to the heart of the matter, we buy things we don’t need because we think they’ll bring us happiness. If you want to reverse this trend, you should practice gratitude every day. You can do this by making a daily list of things you’re thankful for. It’ll change your entire outlook.
Adopt a Long-Term Outlook
It’s human nature to be focused on the here and now. We focus on what’s real to us – and that’s typically the next 6-12 months. Unfortunately, it’s hard to be financially successful with such a short-term outlook.
Stretch your perspective so that you’re looking at the next 5, 10, 25, and 50 years of your life. In doing so, you increase your chances of making smart decisions that benefit you both now and in the future. What you’ll discover is that the safest and most effective path to wealth is by living a life that’s within your means.