Building wealth by living below your means

I think there are many ways, and everyone's journey is a blend of a few different methods. The way I see it, you can build wealth in two primary ways:

Earning more money or spending less.

Let's dive into one for a minute.

Spending Less Money

The idea behind this method is simple: spend less than you earn. It sounds easy enough, but it's not always as cut-and-dry as it may seem.

For example, let's say your household income is $100k per year. If you're a single earner, then yes, that would be considered "average" by most standards.

But if you have two working adults and one child, then you'd probably consider yourself higher up on the economic ladder.

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And depending on where you live, perhaps even upper middle class. That means that you could technically save 50% of your annual earnings without breaking a sweat.

However, what happens when you factor in lifestyle inflation? In other words, things like groceries, utilities, transportation costs, insurance, entertainment, vacations, clothing, etc… These are all expenses that most people don't think twice about until they run out of cash, at which point they scramble to get back on track.

Avoiding lifestyle inflation

How do you avoid falling victim to lifestyle inflation? Well, you can use an envelope system or some other form of budgeting where you set aside a certain amount of cash for each expense category every month. Or, you could simply divide your monthly income into equal parts, put half of it away for savings, and then use the remaining funds to cover expenses. Either way works fine. The key is staying consistent with whatever method you choose.

I personally love the 50/30/20 rule. This means that 50% of your take-home pay goes to living expenses, 30% goes towards saving, 20% goes towards debt repayment, and no more than 10% should go towards discretionary items like eating out, going to movies, buying clothes, etc… You can find plenty of online calculators that will help you figure out what percentage works best for you based on your annual salary.

Now, it doesn't matter how much you make compared to others. Your finances are completely unique to you, so it's important to create a budget that suits your needs instead of trying to mimic someone else's goals.

But regardless of how you structure your budget, the key is sticking with it. Without discipline, you'll never reach financial freedom.

Planning for your future

The idea of living below your means is to plan for the future. Living below your means involves planning for a hypothetical middle-class lifestyle. For instance, if a hypothetical person earns N30,000 a month and wants to live comfortably without having to work overtime, then they would need to save up at least N10,000 every month.

If that person's salary increases in six months to N100,000 per month then they would have met their savings goal and can now save more for other things. This type of planning is also about managing your time and prioritizing what you want to spend your money on.

If you want to save enough for the future, you need to live below your means. The earlier you start, the better.

It is possible to save up for a big goal if we manage our money well and live below our means. There are two ways to do this: save more and spend less. The earlier we start, the better because it will become easier as time goes by.

Be contented with what you have

Choosing to live below your means is not an easy one. It takes a lot of discipline, self-control, and determination.

But living below your means is not simply about having less money or fewer possessions, it’s about having enough for what you need and being content with that.

You have to have a good grasp of the worth of what you have. You must be able to determine what your necessities are and what would make you happy. And you might also need to adjust that list as your life changes, such as getting married, having children, or moving into a new place. But if you can make it through these difficult days, then living below your means will be well worth it in the end!

Retiring Early

If you want to retire early, then you need to look beyond just cutting down on expenses. Instead, you must find ways to bring in additional revenue streams. And fortunately, there are tons of ways to do that, including side hustling, freelancing, investing, and starting your own business.

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