Living Beneath Your Means: The Foundation of Financial Independence

05/19/2015 10:16 pm ET | Updated May 19, 2016

The whole concept of living beneath your means is so simple that it's virtually "old school". There's nothing high-minded about it, and no product to sell to help make it happen. For that reason, it's a concept that is generally ignored in favor of more technical financial applications. And yet it is virtually the foundation of financial independence.

There are a number of ways in which living beneath your means can virtually revolutionize your entire financial life.

Debt -- The Inevitable Result of Living Above Your Means

There are various strategies available to enable people to get out of debt. All of them ultimately point toward living beneath your means, although they will generally use much more technical language, as well as more advanced sounding concepts.

The reason should be obvious, until you can begin living beneath your means, you have virtually zero chance of ever getting out of debt.

In fact, it's essential that you recognize that the inverse of living beneath your means is the very cause of being in debt in the first place. Debt is the result of living above your means. If you earn $50,000 per year, but you spend $55,000, you will add $5,000 to your debt each and every year.

The only way to break that cycle is to reverse the trend. If you can reduce your spending to $45,000 per year, you will have the funds available to begin paying down your debt. But that reduction must occur in order for you to make any progress.

Chasing Higher Income Can Be a Catch-22

It's a common belief that financial independence will ultimately come as a result of a higher income. That can prove to be true but only if you are successful in keeping your spending level as your income rises.

This is often the opposite of what happens in reality. A higher income more typically leads to lifestyle inflation -- your cost of living rises in proportion to your income. The end result is that income never outstrips expenses, no matter how high your income goes.

This is why people often feel that they aren't any better off even with a higher income. This isn't to say that increasing income is in any way a negative thing. But it does have to be properly managed, otherwise it will not have a positive impact on your overall financial situation.

The Less You Spend, The More You Can Save

The most obvious benefit of living beneath your means is that it creates the ability to save money. Savings provide you with a cash cushion, that enables you to weather the storms of life, and to do so with less worry. But it also keeps you out of debt. After all, if you have sufficient liquid savings, you don't need to borrow money.

True Prosperity is Defined By How Much Money You Have, Not How Much You Earn

Though wealth in America is often measured by income, true prosperity is really a matter of how much money that you actually have. We can think of this as your surplus; and if you have enough of it you will have more control over your life and your future direction.

Financial independence is typically found in a strategy that steadily increases savings, which can then be invested to produce even more income. A perfect financial strategy is one in which investment income steadily grows until it fully replaces your earned income, and you can retire.

But none of that will happen until you first begin living beneath your means.

The Many Benefits of Living Beneath Your Means

Even apart from growing wealth and retiring, living beneath your means offers a number of attractive benefits:

Not being trapped in a job. People often stay in jobs they don't like because they are heavily dependent upon the level of income. But if you can live on less than you earn, you'll be free to take a lower paying but more satisfying job elsewhere.

You will become a natural saver. So many people are in debt because they never learned how to save money. But if you live beneath your means, you will always be putting money into savings, because that's what you do with money that you don't spend. Saving money is an underestimated survival skill. And if you have savings - and particularly if you don't -- you probably already know that life is better when you have a fully stocked bank account.

Being liquid. As a result of living beneath your means, you will always have extra money. This will afford you the freedom to go where you want and to do what you please in most circumstances. This will not be possible without the surplus that living beneath your means provides.

You'll have less stress in your life. When you have extra money in your budget, extra money in savings, and little or no debt, you'll worry less and sleep better at night. You'll probably even work more efficiently at your job, because you won't have concerns about not being able to pay your bills.

Living beneath your means is sort of like going on a diet. You know that there's something good about the lifestyle, and especially about what awaits you when you stay on course. But you have to make that initial decision to make the changes necessary in order to enable you to do it.

And once you do, you'll quickly realize that living beneath your means is the true path to financial independence, whatever your income level may be.

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