Aiming for Less

Richard Quinn

WHAT DOES IT MEAN to “live within your means”? To answer the question, we first need to define “means.”

If your gross income is $60,000, that income isn’t your means. For starters, you need to subtract income and payroll taxes. To live within your means, you need to spend no more than your net income—income after taxes and other withholdings.

I’ll go further and suggest that your true means are your income net of monthly savings for retirement and financial emergencies. Some people do even better. They live below their means, meaning they save extra—denying themselves spending that many others happily embrace.

Living below your means isn’t about deprivation or sacrificing all enjoyment. Rather, it’s about making a conscious decision to prioritize financial security. If you’re already saving enough to meet long-term and short-term goals, living far below your means strikes me as unnecessary, even punitive. I’m not a fan of super-frugality.

Living prudently is about managing your finances responsibly and making choices that align with your income. The key words here are “align with your income.” Living within your means is easier as your income rises, and yet many higher-income folks fail to do so.

Where you live is a factor, too. I live in the third highest income-tax state, one that also has the nation’s highest property taxes. The average property tax in our town is $17,206, and our bill is $13,600. One result: Our monthly fixed costs are $4,193.

These expenses include property taxes, homeowners’ association fees, and all insurance and utility bills. They don’t include the cost of groceries, gasoline, clothing, personal care services, gifts, eating out or car maintenance. It also doesn’t include any expenses related to our vacation home.

While some say they live comfortably in retirement on $50,000 a year, it costs us much more. We live comfortably, not luxuriously, but where we live makes a big difference in what it takes to do that. In other words, how much a person spends isn’t, by itself, an accurate indicator of frugality or prudent spending. Still, we manage to live below our means. One sign: We’re retired, and yet we still save each month.

Living within your means is easy. Let me rephrase that: It should be easy, but for many people, it isn’t. They falter in the face of all the pressure and encouragement to spend.

Some people will say that tracking your income and expenses is essential. Typical advice includes creating a budget to identify areas where you can cut back. I disagree. I contend the real problem isn’t a lack of knowledge about spending. Rather, it’s a lack of discipline, an inability to stay focused on financial goals and a propensity to rationalize spending.

My advice is to avoid impulse purchases. Don’t succumb to the temptation to buy things you don’t need or can’t afford. Give yourself time to think before making purchases.

Which of these is the most important to you: impressing the neighbors, obtaining immediate gratification or achieving important financial goals? I vote for No. 3.

My advice: Define your short-term and long-term goals, such as saving for a car, a vacation or retirement. Living within your means will help you achieve these goals faster. Knowing you have control over your finances, and aren’t living paycheck to paycheck, will reduce anxiety and stress.

Two simple strategies should help: Save first through automatic payroll deduction, and never end a month with a credit card balance. If you follow those two rules, you’re forced to be financially prudent—and you’ll find yourself living below your means.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on X (Twitter) @QuinnsComments and check out his earlier articles.

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