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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 QuinnsCommentary.net. 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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Thank you Sir Richard! This does work if we can all stick to the plan. And, if there is a spouse, the effort must to be in place for each to be on the same page, in the same book for the goal to come to fruit.
Absolutely
I’m on the same page with you generally about tracking spending, and your last paragraph resonates with my approach, which is “as long as I’m saving and paying my bills, I don’t really need to sweat the details.”
However, being on the verge of retirement, I expect to spend a year tracking expenses so that we can “stress test” our retirement spending plan. It’s easy enough not to worry about day-to-day expenses while we’re still working and have disposable income. Once we’re retired, we’ll be living on less. So it could be helpful to track and adjust spending before we get there. Once we’re satisfied that we’re living below our new means, I probably won’t keep tracking things.
I’ve been retired 14 years and it takes only a few months to get in the groove and know what your ongoing spending will be. Discretionary is different. Because of that we isolate our monthly income into buckets. One account covers all basic spending, another basic, but not fixed- food, small donations, clothing, salon, etc. A third holds all the potential discretionary spending. The accounts are not mixed or one used for another’s purpose. Our discretionary account builds up until we travel, etc. it’s used and then starts building again.
“Living below your means isn’t about deprivation or sacrificing all enjoyment. Rather, it’s about making a conscious decision to prioritize financial security.“
Incredibly well said, Mr. Quinn.
Doesn’t seem like a hard concept does it and yet so many people seem to struggle with the idea.
A lot of good stuff in your article and readers’ comments. I think it often comes down to a person’s mindset. People who are open to learning and applying what they learn can change and adapt to improve. But, if your mind is closed, you are fated to continue on your current trajectory, for better or, more likely, for worse.
That does seem the case. It’s not easy I guess to focus on a long term goal and stick with a strategy through thick and thin and temptation
Dick – once again you provide amazingly simply, yet solid advice. Have you ever considered running for public office? 🙂
Thank you. Does simple and straightforward go with politics though😎
I live by my cashflow worksheet. I complete it with accurate numbers for income, household expenses, year end numbers/accounts, subscriptions, and asset values. From there, we know what we should adjust to avoid “lifestyle creep.” It helps make our spending more intentional.
Sounds a bit complicated, but if it works for you, that is what is important.
thank you. this article should be on the USA Today column.
Dick, that’s good advice. People who save fail to understand those who don’t. But consider this: Don’t you think the conflict is due to basic personality differences that may defy attempts at logic to move the spenders toward more concern for the future? Your points resonate with people like us, but seem to fall flat before they motivate those who would benefit most. That’s not a reason not to try, though. And we keep trying.
My sister and friends would rather not do the pencil paper planning part of managing household expenses.
Me thinks that the people who read HD really don’t need to, and the people who’d benefit from reading HD never will.
Truer words were rarely spoken.
The skeptic in me can’t help but wonder how many of the people who would benefit from reading HD would actually change their behavior if they did.
You have a good point Ed, I suspect that is part of it. Perhaps it is an inability to think long-term, maybe an entitlement mentality. Whatever it is, there sure are a lot of people afflicted.
The very idea of putting discretionary spending on a credit card and then paying 20% interest is beyond my comprehension.
I’m anticipating a talk with a younger friend who I can see is headed toward retirement years financially unprepared. My approach will be to stretch his vision into the future to a threshold level of lifestyle that must be met, then work back to the actions that must be taken today to have a reasonable chance of reaching it. It’s the logic that motivated me, but I don’t know how my effort will be received.
Money is a difficult subject and people are so sensitive; to me, it is a thing to figure out. I have two friends I’ve been able to help out.