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Why You Should Live Below Your Means

You cannot live well if you are constantly stressed, and money is a source of stress for nearly two-thirds of Americans.

That means more than 200 million people in the United States alone are worried about money.

But it doesn’t have to be that way.

The key to easing your mind of financial worries isn’t to earn a huge salary — it is to live below your means and maximize your savings.

Research shows that once our basic needs are met, additional income does not produce lasting happiness.

You should aim to make between $80–120K per year (less if you live in Idaho, more if you live in New York) to maintain a comfortable standard of living, but after that point saving and investing your money is far more important than making it.

Once you are in that income range, if you consistently save and invest 15 percent of what you earn, you will set yourself up for long-term financial security — and the peace of mind that comes with it. In fact, being frugal is the number one common habit among millionaires.

Save 15% of Your Income

The simple truth is that saving 15 percent of your take-home income is the single most important thing you can do for your financial security.

The earlier in life you start doing this the better, as the compounded growth over time is what makes this strategy so effective.

Of course, this sounds great in theory, but we all know how easy it is to spend everything we make (or more). A bigger salary often leads to a bigger house and fancier car, but not necessarily a bigger bank account.

I will admit that in the past I focused most of my efforts on earning more money each year, without giving much thought to saving for the future. I believed if I just kept making more money, then I’d always have plenty of it available. But I now realize that increased spending can always keep pace with increased income, and therefore saving is the more important part of the equation.

Make It Automatic

The only way to ensure I save enough is to make it automatic.

I now set aside 15 percent of my income each month via automatic contributions before I spend anything else. I hit the 15 percent savings target by automatically transferring money into my 401(k) and 529 college savings accounts each month, so this money never actually makes it into my hands for potential spending.

My 401(k) is coordinated through my employer, and I personally set up the automatic monthly deduction from my checking account into my Fidelity 529 fund.

If your employer does not offer an automated option, you can still easily manage similar automatic transfers into an IRA, Roth IRA, or other investment account. You set up the account with a service like Fidelity, and then have the money automatically transferred right after each paycheck.

Once this 15 percent is safely put away, the remaining 85 percent is my living expenses budget, which covers the mortgage, car payments, credit card bills, food, entertainment, etc. After all those expenses, if there is still money left over, I’m free to spend it or save as I wish.

Whenever I’m fortunate enough to get a salary raise or bonus, that presents an excellent opportunity to pad my savings and investments. According to Warren Buffett, the most reliable investment over the long run is a low-cost fund that mimics the S&P500 Index or the whole stock market.


Only about one in seven people save more than 15 percent of their income, and the goal is to be one of those people.

If you’re not in a position to save that much right away, build up to it over time.

Slow and steady savings over the long haul will bring a sense of purpose and pride as you watch your money grow.

Andrew Merle writes about the pursuit of living well, including good habits for happiness, health, productivity, and success. Subscribe to his email list at andrewmerle.com.