Here are 5 tips for saving money and living on less than you make.

1. Know How Much Money You Make.

I know it seems obvious, but you would be surprised how many people have no real concept of how much money they make annually, monthly, or per paycheck.You cannot start living on less than you make until you fully understand how much you make. You need to know what your gross income is (the total amount your company compensates you plus any other income) and how much your net income is (gross income after taxes). Once you have figured that out, and most of you should already have that part figured out, you can move on to step 2.

2. Start A Budget.

If you don’t have one already, then you need to start one today. To start a budget grab a sheet of paper.

• At the top write down how much you will make this month (see item 1) from all sources including salary, gifts, eBay sales, and interest. This is your income.
• Below that list out all of your fixed expenses. These are things like rent, phone bill, Netflix, car payment, student loan payment, etc…
• Below the fixed expenses, write out all of your monthly variable expenses. These include gas, electricity, gas for your car, groceries, metro fare, etc…
• Below variable expenses, write out all of your discretionary spending. This is the category where you can make the biggest impact in terms of cutting down on spending. These are things like clothes, movies, eating out, iPhone applications. Plan out ahead of time how much money you’re willing to spend in this category and then stick to it. If you use up all of your discretionary funds, then you cannot go to the baseball game with your friends, nor can you go out for drinks afterward. You cannot afford it.
• Lastly you need to plan for all of your one-time expenses. These are things like insurance premiums (if you pay them every six months, which you should), plane tickets to visit family, medical procedures, car repairs, etc… It’s okay to put money into this category even if you don’t have anything planned. Something will come up, and if it doesn’t you can roll the money into next month. This is not for concert tickets, trips to Vegas, or anything like that. It’s one step removed from emergency funds.

3. Stop Eating Out At Lunch.

Most people eat out with their coworkers, that’s normal. Most people are in debt, can’t pay their bills, or live paycheck to paycheck, that’s also normal. Stop being normal, start respecting your budget. I know it doesn’t seem like much, but eating out is much more expensive than packing a lunch and it isn’t necessarily better. If you become super dedicated and always pack a lunch (and you aren’t filling your lunches with oysters and caviar), you could save thousands of dollars a year. Be reasonable with this one. You should still go out to eat if you want to, but stop going out every day and try to limit it to once a week at most. As an added benefit, you might start losing weight because you stopped eating so much junk.

4. Dump Cable And Stop Buying DVDs. Get Netflix And Buy An [HD] Antenna.

Digital cable, Verizon FiOS, and DirectTV are all awesome. I admit it. It’s cool to have so many channels to choose from. However, the last time I looked into it getting cable, basic cable alone cost at least $20/month and that’s just the local channels- no ESPN, no Cartoon Network. If I want those channels I have to get the extended package. Do my options end there? No! There is digital cable or satellite to think of, and everyone wants you to buy the triple play (phone, Internet, TV) for over $100/month. No thank you. I have not had cable service in a couple of years and I hardly even notice that it is missing because almost all of my favorite programs are available for free over-the-air in beautiful High Definition. The cable companies will not tell you this, but over-the-air HD has the widest bandwidth and can be the best quality HD programming available. Heroes, Lost, 24, The Office, The Biggest Loser, American Idol, and most nationally televised NFL football games are available for free in High Definition on your television set. All you need is a $15 to $50 antenna. If you do not have an HDTV, don’t sweat, you can still enjoy all your favorite programming on your TV with an antenna, but make sure you go here to learn more about the February 2009 switchover to digital TV.

Netflix, as you must know, is one of the best inventions ever. Any movie you could possibly want, delivered straight to your door. I love it. Before I used Netflix and before I got my financial act together, I would buy at least one if not two or three DVDs every week. I was addicted, and my collection quickly grew to over 500. As a movie buff I couldn’t have been happier. A strange thing happened when I started using Netflix, I continued to watch the same number of new movies, but I was paying 10 times less to do it. I had a spending problem when it came to DVDs and Netflix was my cure. I really didn’t need to buy every movie that came out, but I did, and now I only buy movies that I will watch repeatedly or for some reason I want to collect them. For example, Star Wars, Indiana Jones, and Futurama are all DVDs that I feel like I must own because that’s just who I am and there is absolutely nothing wrong with buying a few DVDs that you really want. I really liked Cloverfield, but I was satisfied after watching it on Netflix once and I really don’t need to own the DVD. If I ever want to watch it again, all I have to do is add it back to the queue. If you don’t have Netflix and are looking to cut down on your entertainment budget, give it a shot. Instead of going to see every new film you like in the theater, add them to your Netflix Queue. Netflix will save the movies in your queue until they are released on DVD, so you won’t forget about them. For the price of two movie tickets and snacks at the theater, I could get almost 5 months of Netflix on my current plan. What a bargain!

5. Focus On The Small Things.

Cutting back on spending really starts with the small stuff. Turning lights out when you’re not using them, shutting the AC off when you leave the house, and wearing sweaters instead of cranking up the heat are all ways to save money at home. To save money at the store, you can buy store brand food instead of name brand food. Honestly, can you even really tell the difference? Really focus on small expenditures that you have on a regular basis. If you buy a cup of coffee or espresso every morning at Starbucks, then get a cheap coffee machine and brew your own at home for a fraction of the cost. If you buy a soda every day in the vending machine at the office, go to a CostCo/Sam’s Club/Walmart and buy a large supply of soda at a fraction of the cost and take one with you every day. Any one of these might not feel like much, but when all the small things are added up, they can really make a difference.