The key reason that I paid off my debt and saved money is because I lived below my means. That means my expenses were less than my income. Because of that, I dedicated more money to debt, which enabled me to pay if off quicker than a person who lives within or above their means.
Everybody knows that they should live below their means. It seems obvious, right? People don’t follow lots of things that are obvious and for their own good. You know that if you take in more calories than you burn, you’re going to gain weight. Yet, you do that because the immediate satisfaction you receive from eating your favourite food triumphs not gaining weight.
The same occurs in your financial life. Although you know that you shouldn’t spend above your means, you do so because spending provides you with instant gratification to enjoy two things:
Status and comfort
Most people are impatient. They want what they want right now. Why wait to own something you want when you can have it immediately? Because you don’t have the money to buy it with cash. You probably also have debt. At the very least, you should pay off the current debt before buying anything else.
Besides being impatient, most people also want to portray an image of success. There’s nothing wrong with wanting to be successful, but many people look wealthier than they are. They use material possessions to make others believe that they are more successful than what their bank account states.
Some examples include wearing designer clothing, eating at fine-dining restaurants and vacationing in exotic locations. But the most prevalent status-seeking purchase is cars. Some people’s monthly car expenses are more than their rent. I used to be one of them.
The reason a fancy car is popular amongst people is that you can take it with you wherever you go. That provides you with endless status, or, at least, that’s what you think.
Indulging in spending sprees and driving a fancy car isn’t a bad thing if you can afford it. The problem is that most people can’t afford to engage in those activities. But they still want the status associated with those material possessions and experiences. Since they can’t afford them with cash, they finance them.
Most people who seek status fund their lifestyles with credit cards, vehicle finance and other forms of debt. That’s a bad idea, a really bad idea.
The Problem with Seeking Status
We, as human beings, want validation. We want to be accepted by our peers and especially by those whom we perceive to be superior than us. It makes us feel important and successful. We want to penetrate the exclusive social and professional circles to network with them and extend our reach.
But how do we prove to them that we belong in their company?
We try to impress them with our lifestyle and possessions, most of which are financed. Shhhh! They don’t have to know that. As long as we get the rush of them being impressed by us, who cares that we’re drowning in debt while chasing that feeling? That sounds crazy, right? Yet, that’s how many people live.
The validation of other people is more important to them than handling their finances. They may say that it’s not, but their actions prove my point.
But they need to maintain the lifestyle they’ve portrayed. And in most cases, they love the validation so much that they want a bigger dose. For that to happen, they have to make their lifestyle more extravagant. And they make that a reality by taking out more debt.
By taking on more debt, they drift further away from living below their means.
Why Don’t People Live Below Their Means?
After achieving a certain level of status, most people don’t want to downgrade. The problem is that their status was built on debt. For them to pay off debt, they would have to lower their expenses so that they have more money to dedicate to debt.
But lowering your expenses requires you to sell your possessions and downgrade your lifestyle. After you’ve worked so hard to portray the image of success, how could you possibly let it be crumpled up like a frivolous piece of paper? You won’t allow that. You’ll do anything to hang onto that lifestyle.
Besides enjoying the status that your financed life provides, you also enjoy the comfort. It feels good to drive in a car with leather seats. It’s nice to have subscriptions to various video-streaming services and cable channels so you can remote surf the entire day. What would you do without those?
Once you become accustomed to living a certain life, you don’t want to let go of the status and comfort it provides.
How to Live Below Your Means?
I mentioned that I paid off my debt by dedicating as much money as I could to it every month. The only reason I could do that is because I decreased my expenses. I made a list of the expenses that were crucial for survival, such as rent, food, water and electricity. Everything else, was a non-essential item. Yes, literally everything else.
I bought clothes every five years, and I didn’t go on vacation until I paid off my debt. Eating out was not an option. I didn’t care about having a nice car. In fact, I didn’t have a car at all. I used public transportation and walked.
The best thing that happened to me when I became homeless was that I didn’t care about what others thought of me. I just really didn’t care. And because of that, I budgeted so I could pay off my debt quickly, not in a manner that provided me with status and comfort.
I got really uncomfortable because of the sacrifices I made, and I could’ve cared less about status. Seeing my debt balance decrease gave me a bigger rush than driving a financed BMW.
After I paid my debt, my savings account increased significantly because I had no debt payments and I hadn’t increased my lifestyle.
The reason that a salary increase won’t solve your financial woes is because you’ll find ways to spend the additional income. You’re chasing more status and comfort. What you should be chasing is financial prosperity, and you’ll reach it when you pay off your debt and have significant savings.
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