10 Agile Rules for Living on a Budget (Without Eating Ramen Every Night)

Living on a budget is fast becoming the rule and not the exception. Follow these 10 rules to make living on a budget less painful.

Living on a budget is typically associated with austerity and sacrifice. But it doesn’t have to be.

Here are ten agile rules to make living on a budget a bit more manageable.

Living on a Budget - Eating Ramen Every Night

Living on a Budget the Agile Way: 10 Rules

1. Ruthlessly Apply the 80/20 Principle

You have limited attention, limited resources, and limited willpower. Don’t waste your time and brainpower focusing on expenses that don’t amount to much in the end.

Ramit Sethi of I Will Teach You to Be Rich hates the budget advice that you see everywhere about cutting out your daily latte. His point is that no one’s ever gotten rich from skipping Starbucks.

I’d go further. Cutting your lattes is not all that frugal. Assuming a latte costs $3.50 and you indulge yourself every single work day, you’re still only paying about $73 a month. That’s less than most cable bills in this country.

What you want to do with your limited willpower is use the 80/20 rule. Roughly 20% of your bills are accounting for 80% of your expenses. The key is to figure out which 20%.

Looking at data from budgeting app Mint.com (my personal recommendation), the following five expenses account for 80% of U.S. household spending:

  1. Home
  2. Shopping
  3. Food
  4. Utilities
  5. Travel

This breakdown doesn’t include debt, which I would put into its own category.

Right away, deconstructing the issue of living on a budget as five and only five spending categories turns a daunting task into achievable steps.

You can’t spend your time stressing over every item in your budget. Use the Pareto Principle to get to the heart of why you overspend.

2. Rightsize Your Home

We know that homeownership can be a prison. And that most people are purchasing too much house. But here’s another way to look at the American obsession with oversized homes.

Parkinson’s Law says that work expands to fill the time available for it.

There is a corollary to Parkinson’s Law when it comes to where you live. Call it the rule of Parkinson’s Garage:

Junk expands to fill the space available in your home for it.

Think of a goldfish in a bowl. Goldfish grow in proportion to the size of their environment. Even if their “bowl” is a river or a lake.

That’s why the freakishly enormous goldfish in Lake Tahoe are still the same species of goldfish as the tiny ones you find in the pet store.

Let’s say you’re renting a 950 square foot apartment at $1 per square foot per month. Your apartment is filled to the brim with stuff. Stuff in boxes, stuff in closets, stuff in shelves. Most of this stuff you haven’t touched in over a year.

Now imagine there’s a 750 square foot apartment down the street. It also rents for $1 per square foot per month.

Say you had to go from living in the 950 square foot apartment to the 750 square foot one instead. Would you pay $200 a month to store your rarely used stuff? Or would you get rid of your excess stuff?

If you chose the latter, then there’s no reason you should be living in the 950 square foot home to begin with. The two scenarios are mathematically equivalent.

Reframing the problem (bigger apartment vs. smaller apartment + storage fees) forces you to look at what you’re really doing from a dispassionate angle.

Your space needs to be rightsized for the lifestyle you want to lead. Your home is the single most important consideration when you’re living on a budget. Many other purchasing decisions flow from the decision you make of where you want to live.

Like goldfish, your stuff will expand to fill your home if you let it. You can combat this by exerting enormous willpower every time you go to the store … or you can just live in a smaller space.

The less space you have to squirrel away stuff, the more likely you are to confront the things you already own and ask if you truly need them. A larger home requires larger spending to justify its existence.

3. Buy Quality When it Comes to Things You Care About

Frugal doesn’t mean cheap, and living on a budget doesn’t mean owning crappy stuff.

Buying quality items for things you care about might not seem frugal. Buying one $80 dress shirt instead of three $20 shirts seems wrong from a budgeting standpoint. But if that $80 shirt looks better on you, is made of better materials, and lasts longer, it might well be the better bargain in the long run.

($20 shirts tend to disintegrate after a few washes. Believe me, I’ve owned a bunch of them.)

The point is to be judicious about what matters to you, and spend accordingly. I put a decent amount of money and thought into my clothes because I want to look good (especially as an attorney).

I have a lot of computers and tablets. While I wouldn’t call any of them top of the line, the fact remains there are four laptops, three tablets, and two eReaders in my home.

I have a 50” plasma television. Like most Americans, I spend way too much time in front of the TV. My excuse is that I work in television and I have to keep up with the industry, but between you and me, that’s only half-true. Given that I’m going to spend hours in front of this thing, I better be looking at a nice picture!

And so on. Paying for quality matters if the activity is truly worth it to you.

You might buy antique furniture instead IKEA particleboard because you have a passion for it. Or go to live theater because you care about stage acting.

Living on a budget doesn’t mean being cheap across the board, but it does mean prioritizing your spending.

Don’t buy expensive furniture because your friends have a nicer couch. Don’t go to the theater because it’s what sophisticated people are supposed to do.

Do it because you really give a shit. If you don’t, then spend your cash elsewhere.

4. Go Cheap On Everything Else

Lifestyle has the tendency to inflate at the same rate in all directions. You have to actively combat this tendency.

I’ll buy quality items when it comes to things like my wardrobe and my electronics. But if it’s something I don’t care about, I go to the absolute opposite end of the price range.

I bought my tables, desks, and chairs for $5 each from a local elementary school that was selling its perfectly good furniture because they bought new ones (taxpayer money at work). All my bookshelves are secondhand from Craigslist. And for fungible stuff like soap, toothpaste, and paper towels, I go to the Dollar Store where they often have the same exact brands you see at Target.

Here’s a recent example: I decided to switch to a standing desk in my home setup for health reasons. I could have easily spent $400 or more on one of those fancy ones you see that move up and down. Instead, I followed these instructions by co-founder and CEO of Customer.io, Colin Nederkoorn, to create a $20 standing desk using an IKEA LACK side table.

What’s it standing on, you ask? Two of those $5 elementary school tables, of course!

Living on a budget requires prioritizing. Maybe you really care about color-coordinating your bookshelves with your room decor. If that’s the case, you have to figure out what you don’t care about and ruthlessly cut there.

Don’t spend $50 on 20 different mediocre items. Instead, spend $100 on four awesome items you care about and $5 on everything else.

Besides, getting creative can be fun. I’ve seen people turn tree stumps into stools and old car back seats into sofas (I had one in high school and it was quite comfy).

Do you really want your entire home to look like it was ordered out of a catalog?

5. Eat What You Want, But Be Careful of Where and When

I have no qualms about buying a beautiful piece of wild Alaskan salmon for dinner.

The problem is that the $15/pound salmon bought in the grocery store becomes a $45 entree when you get it at a fancy restaurant.

(And you don’t even get a whole pound of it.)

Except for health reasons, you really should buy and eat whatever foods you like. But when and where you buy are of vital importance.

That piece of salmon you buy at the restaurant can be reproduced at home with some garlic, butter, and black pepper. Quality food doesn’t need that much prep.

Likewise, the $1.50 can of Diet Coke you buy from the office vending machine every day costs a few cents when you get it in a 24-pack at the grocery store.

This principle even extends to cigarettes. Don’t pay by the pack when you can get a carton for a third of the price. And as an added benefit, maybe the shame of having a carton of cigarettes around will convince you to quit a filthy habit.

Dining out is usually a result of not preparing dinner ahead of time. By all means, go out on your Friday happy hours or romantic dinners. But are Pizza Hut and McDonald’s runs on the way home from work really how you want to be spending your hard-earned cash?

A lot of resistance to this very basic rule comes down to psychology. Many of us don’t want to think we’re that guy who buys a sugary soda every day, or that we’re too busy to cook a decent meal for our loved ones. But if it turns out you are that person, there’s no reason to flush money down the toilet in addition to whatever bad habits you have. Especially when you’re living on a budget.

When it comes to food, living on a budget doesn’t have to mean starchy pasta and Top Ramen noodles every night. All it means is thinking ahead to when and where you might eat so you can avoid overpaying.

6. Tame Recurring Expenses

The problem with focusing on expenses like daily lattes or occasional car repairs is that they don’t add up.

For small daily expenses, the damage on a monthly basis is minimal (see Rule #1). And for occasional expenses, you can use a process called amortization to put the spending in context. Even a $500 car repair bill works out to less than $42 a month over the course of a year.

Where you’re really hurting yourself when you’re living on a budget is with recurring expenses. Recurring expenses are things like your cell phone bill, utilities, cable television, internet, and auto insurance premiums. You have a legal obligation to pay these every month, otherwise your service will be shut off.

The average cable bill is now an egregious $78 a month in the United States. That’s $936 a year.

According to Early Retirement Extreme, you would need 25 times that amount in investments to fund this expensive habit. In simplified terms, the average American needs to save $23,400 over their lifetime to pay for their cable bills.

That’s a lot of money.

To tame your recurring expenses, you can use any of the following tactics:

  • Negotiate. Threaten to cancel unless you get a discount. This works best when you’re up for renewal.
  • Cancel and replace. Go to a cheaper provider. New customers always get a better deal.
  • Cut the cord. This is a term from the pay television world. You can watch more than enough television with an antenna and an Internet-connected television. I determined that pay-TV was something I could live without a long time ago and cut the cord. I only have it now because I work in the industry and get it for free.

7. Multiply Your Lifestyle by Taking Advantage of Credit Cards

I was surprised to see that travel is the #5 expense for Americans. But it makes sense. Americans have shorter vacations, so we spend more for flights. We also tend to get suckered into more expensive hotels, overinflated vacation packages, and overpriced cruises.

If your financial life is in order, signing up for travel credit cards with huge sign-up bonuses is a fantastic lifestyle multiplier.

By that I mean if you are charging expenses you would have incurred anyway and paying them off every month, you can rack up hundreds of thousands of points to use for flights and hotel stays. All without changing any of your spending habits.

There are a number of sites that are devoted full time to this topic. Two I frequently use are Million Miles Secrets and The Points Guy.

8. Except If You Can’t Control Your Debt

Big caveat to the above. If you can’t control your credit card debt, don’t sign up for more.

Instead, devote every red cent to paying down your credit card debt. It’s not sexy or glamorous, but keep in mind the end goal: personal freedom.

You can’t be free and agile if you are chained by your debt.

9. Invest in Yourself

Pay off your student loan and credit card debt.

Build an emergency fund (or what I call your Personal Runway).

Open a retirement account and invest in a low-cost index fund.

These are all things we know we should be doing, but it can be hard. It can be hard because everywhere we turn, advertising messages are telling us to consume.

I want you to switch gears. I want you to stop thinking of yourself as a consumer, and start thinking of yourself as a creator.

Creators invest in their creations. They invest in their tools. They invest in themselves.

You can’t do that when all you’re concerned about is consumption.

Yes, that $30,000 Beemer looks enticing right now, but in a year’s time you won’t enjoy it any more than a $17,000 Toyota. That’s because of psychological effect known as the Hedonic Treadmill. In short, you get accustomed to nice things way more quickly than you would predict.

Investments in yourself can pay off. That doesn’t mean they always do, but they at least have a chance.

On the other hand, the ROI on investing in more consumer junk is pretty nonexistent.

10. Except You Shouldn’t Go Back to School


I’m going to go out on a limb here and assume most of you are college grads.

Sometime in your career, you will get the dark urge to go back to school. You’ll think, Maybe I could go back for an MBA and become an entrepreneur. Or, Maybe it’s time to go to law school and help poor people.

Don’t. Seriously.

You don’t need an MBA to start a business. You don’t need a JD to make positive social change.

And you don’t need a humanities master’s for … well, you don’t need a humanities master’s for anything.

Whatever it is you think you can’t do without a degree, you’re probably wrong. Someone has done it. You can do it too. And you won’t have three years of lost time and extra debt holding you back.

People think getting advanced degrees opens doors. They don’t. They close doors.

Imagine trying to get a marketing job and having to explain why you have a law degree. The first question any potential employer is going to ask is why you went to law school and why you aren’t practicing law. No matter how good your answer is, they may think that you still secretly want to be a lawyer and not hire you. Or they may think you’re overqualified, and still not hire you.

There are three reasons to get an advanced degree:

  1. Someone else is paying for it. Your job is paying you to get an MBA or its a PHD program that’s paying you a stipend to do research there.
  2. You need it to get past a gatekeeper. You can’t practice medicine without an MD or law without a JD. But you can do pretty much everything else without a degree e.g. you don’t need an MFA to publish a book, you need a laptop.
  3. You specifically want to do the thing that the advanced degree enables. You better be damn sure you want to be an MD or a JD before you get one. That means asking a ton of questions of practitioners (not professors, many of whom don’t know anything about practice because guess what, they went into teaching).

Here’s the catch: Two of the above need to be true for you to go back to school. Preferably all three should be true.

I made the mistake of going to law school without knowing whether I actually wanted to practice law. That might sound silly, but tens of thousands of students make this mistake every year. And then I financed it all through student loans.

I am still recovering from this mistake. Nothing blows up a budget faster than financing your life. That includes mortgages, student loans, and car payments. Nothing.

Avoid it if you can.

Image by by nemuneko.jc.


That was a huge post. Living on a budget is a reality for many Millennials as we are learning to live with “the new normal” AKA the shitty economy that the Baby Boomers have left us with.

Let’s get your take on this one.

What’s the one rule to living on a budget that I left off? Why do you think it’s important?

Take care.

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