There are many excellent reasons to get in the habit of living on a lower income – this last recession was a wake up call for the Canadian middle class who suddenly had to do so due to job losses and business bankruptcies. There are few things worse than being forced into a situation – and psychologically, there is a big difference between choosing to live a certain way versus having to live a certain way. So much depends on our mind-set around money. While a lower income may seem like a nightmare for some, it can actually be fun and a good way to exercise your creativity to habitually find ways to live on less. I have to admit, this is one of my personal favourite things to do – see how little I can spend in a day or a week, because it forces me to think outside of the box, create more community with others ie. Setting up a carpool or clothing swap, opting for pot-lucks instead of restaurants, and finding free ways to have fun. And the surplus at the end of each month is a huge reward! Here are a few good habits and ideas that can help keep you afloat and living well on fewer funds.
Needs vs. Wants
A surprising number of people have difficulty classifying their needs and wants. When you’re living on less, these differences become extremely important. A need, as my mother always told me, revolves around the basics – shelter, utilities, food, clothing, transportation, emergency fund/planned savings and long-term investing/saving. Basic clothing such as socks, shoes, pants, and tops, are a need, but those $600 heels are a want, even if they might make you look stylish in the office. It is also a must to get clear on what are true needs and wants when it comes to the basics – a single person may not ‘need’ a 1 bedroom apartment versus perhaps sharing a 1 bedroom plus den with a roommate or two (this can also be a lot more fun!), or renting a room in a larger house, or downgrading to a studio suite. Similarly, there can be a huge range of costs in groceries – do you really ‘need’ to have strawberries in December, when their cost is at a premium?
Reduce Costs
Two of the biggest costs for people are housing and transportation. If you’re headed towards retirement or an income reduction, prepare yourself by getting your housing costs down to a third of your income or less. You may have to downsize or move to another area, but it will be worth it in the long run. If you drive a gas heavy, leased or otherwise financed car, consider trading in for a cheaper, more fuel-efficient model and take public transit or carpool. Or better yet, get a bike, (and cancel the gym membership you never use!) and/or see if you can work from home or adjust your hours so you don’t have to commute as much or at all. Some people I know either run or walk to work. Be creative!
Make a Budget
No matter how much or little money you have, a budget is very important and useful. A budget simply means having an awareness of what your fixed costs are and what your limits are for variable expenses. Include fixed and variable expenses in your budget. Make sure you build a ‘fun’ account within your variable expenses that allows you to indulge in genuinely pleasurable wants. You will enjoy them that much more when they are planned for and well thought out. *For example, my husband and I at one point had gotten into the habit of eating out almost all of our meals and snacks, and we weren’t even really enjoying it anymore – it was just an expensive habit. When we cut right back, we realized that there was one South Indian restaurant we really missed, so now we save up to go there every couple of months – it becomes a treat to look forward too and is much more enjoyable now.
Use Your Skills
What skills or products can you offer to somebody in order to get something back in return? Bartering is a great way to get the things you need without spending a lot of money. Offer to walk a neighbor’s dog in exchange for some fresh vegetables from their garden, or trade childcare with another parent so you can take turns going out (or staying in, if you get what I’m saying) for a low cost date.
Do free activities
Going for a walk or bike ride together, or playing a board game or cards, cooking or baking, watching a favourite TV show, renting books or videos from the library, trading back or foot massages, or just talking are great ways to relax and enjoy time well spent. It’s amazing how dependent we as a developed society have become on costly forms of entertainment, including mindless spending for fun.
The thought of living on a lower income may seem like a challenge, but with some clear priorities and strategies you may be surprised how your life improves significantly with less. What else works for you? Share your experience!
Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.
Good tips – I recently bought a house & this advice will come in very handy for us over next few years.