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Seems like a simple question until you think about it. “Means” as living within ones “means” may mean something different to different people😳.
To me, “means” means no debt other than a mortgage and maybe an auto loan (maybe). Certainly no credit card balance at the end if the month
What makes up the “means?” I say it’s all earnings that are or could be subject to FICA taxes if there were no limit. That means, “means” does not include say, interest and dividends, but if retired it has to include a pension, social security or other regular income stream.
I also think “means” only begins after saving, except once a person is retired.
Would you include taking a lump sum from investments to buy a car within ones “means?” Maybe, is the way I see it. Why maybe? If that withdrawal has zero impact on long term financial needs, yes. If it has a chance of messing up future income needs, no.
Funny how “means” is unrelated to income. Everyone has a “means.” Although at the stratosphere income level, “means” is quite meaningless.
Since we have money left each month from our pension and social security – sometimes more or less than others – I believe we are living below our means. I would be stressed living any other way.
HD used to consist primarily of useful financial information. Unfortunately, that is becoming more and more difficult to find.
HD was always a mix of technical financial/investing info and the practical human side of money and its impact on behavior and dealing with life. I have been writing that way nearly eight years.
I fail to see anything of practical value to be gained from discussing this topic, unlike numerous other non-technical articles and forum threads about the human side of money.
I think there is an important message here for worker bees. Dick contends that ‘means’ should be defined as one’s available earnings after adequate contributions to retirement savings. A person could be totally debt free with a few bucks left over at the end of the month, but can she/he/they claim to be within their ‘means’ if not preparing for retirement?
Do you honestly think his proposed definition will change anyone’s contributions to their retirement svgs, especially given that “means” is such a subjective word that is used in many different ways?
Honestly, Parkslope, I think most everything offered as advice goes in one ear and out the other. And I know Quinn offends at times. I also know that he’s one of a handful of writers that puts himself out there for both praise and scorn by contributing what he believes may be helpful to some. And yep, that dude is opinionated; you ought to read his Facebook posts, LOL.
You should read my blog if you want to see opinions. 😱
Not going along with the crowd, questioning the generally accepted, pushing back on convention is how we move forward in thinking. IMO
Everyone is free to accept or reject, but at least think about the alternatives and possible consequences of the for or against positions.
I have no problem with anyone challenging anything I write, but don’t criticize me if I come back with my opinion on it.
It would be nice if some of the critics would take a position and generate an original post. A number of former HD writers have disappeared. I think that’s a shame.
I’ve also lamented the disappearance of some really good writers on the site.
And regarding ‘mission creep’ and inappropriate posts. I do not discard some peoples opinion on the subject, however, on a recent trip to Bogleheads, I noticed questions about Korean fried chicken and electric teapots. I had no interest in either, so I didn’t bother to read them.
I don’t see how complicated it is. A person has an income, they also have a net income and from that they save first and then they have a real net income and from that they spend and if they avoid consumer debt beyond the current month and pay their ongoing bills, aren’t they living within their means under any definition?
I suppose someone could argue that if they easily paid monthly credit card debt, they were also living their means, but I think that is a stretch.
Of course, there may be some people who don’t have any need to save.
At least we can agree that your notion of “mean”is simplistic, although I could be wrong given your penchant for argument. My original point was that your concept of “means” was too obvious and simplistic to be of any practical value.
I guess the most simplistic definition would be don’t spend more than you have which to me implies no credit card debt.
My problem with that is it may not leave room for saving for the future.
Like many other discussions, I guess it depends on what is important to whom and when.
So a guy who is still working earning $50K, but receiving $300K a year in interest and dividends from his $10 million brokerage account, has limited means? I don’t think so.
And you think your example is realistic?
Another great article. My outlook is to each his own, some better than others. From my childhood onward I liked to earn money, and have some in my pocket. I hate debt but knew it was the only way to buy a car, that came first then buy a house. I was elated when my car payment was paid, and ecstatic when I made my last house payment. Now in retirement happy I saved all those IRA’s so I can make my apartment payment in my CCRC.
I’m retired without a pension and disagree that “means” should exclude dividends and interest. Both are regular periodic income streams that support my retired lifestyle even though they are not subject to FICA taxes. Three-quarters of my dividends are qualified and therefore not subject to income taxes at my low tax bracket existence. One-quarter of my dividends (money market account interest) is not qualified and therefore is potentially taxable income.
Half of my dividends are reinvested to compound my savings during retirement. The other half is distributed quarterly to my checking account for spending while living within my “means”.
That was mean before retirement. “but if retired it has to include a pension, social security or other regular income stream.” If interest and dividends are that income stream, it’s part of means in my book.
Dick,
In your opinion is cap gains payouts part of the stream (along with the interests and dividends stream)?
Thank you, Richard, for the clarification. We’re in the same stream.
99+% of our investments are in our IRAs (currently 19% in Roths, eventually will be about 30-35% when conversions are completed in two years). I utilize a total return philosophy rather than a total income philosophy. Much less complicated in my mind. Money is money to me. Doesn’t matter in what form.
Agree with your total return philosophy and rebalance….across all types of accounts – taxable, pre-tax, Roth, etc.
Monies in those accounts are fungible while buying/selling, rebalancing during your portfolio management process.
So what are one’s ‘means’ if one has no pension; and social security and dividend income aren’t enough to cover one’s annual spending?
In decumulating one’s portfolio for retirement income, which is what an ever-increasing percentage of retirees are faced with, ‘means’ becomes an extraordinarily squishy notion. How long are you going to live? Are you going to have huge medical expenses along the way? What if the market tanks? What if the market takes off and never stops? What if inflation goes through the roof? Or remains dead flat?
For most new retirees, any sort of concrete number for means very quickly becomes fuzzy, if not meaningless. I like to think of more as analogous to an electron probability cloud. The goal isn’t to know what the number is at any given time. It’s to understand what it’s liable to be, and what I’m going to do
ifwhen it turns out to be differentWhat you describe seems to be that it is impossible to live within one’s means. I don’t get what you are saying.
Of course one’s means can be variable based on the source, but that just says spending must also be adjusted.
Some wise man said “Just because you can buy something doesn’t mean you can afford it”
So true.
After reading your post and the comments on “living within one’s means” I have a personal example to share. My wife and I booked an extravagant 15-day cruise from Hong Kong to Tokyo well over a year ago. We paid a 10 % deposit upon booking and the balance of the trip 6 months in advance. Both payments were by ACH transfer to save 2.7 % in credit card fees. The cost of the trip fit within our annual budget which includes interest and dividends but with no need to draw extra cash from our retirement portfolio.
One could say I missed out on the opportunity costs of my investments by tying up the funds in advance but by your definition I am living within my means, the cost of the trip likely will have zero impact on our long-term financial needs and I will have no debt on the conclusion of the trip. I also will not have to worry about the maintenance costs and rapid depreciation of a Bentley.
Yup, I would say you are living within your means.
That Bentley maintenance would have to be included in a persons budget too😎
I would suggest a reasonable definition would be something along the lines of you’re not accumulating debt to fund your lifestyle, you can pay your bills plus contribute to savings and retirement accounts without financial stress.
Sounds reasonable
Good definition!
How about this for MEANS:
Must
Explain
All
Numbers (in a)
Spreadsheet
I like this definition.
Especially since a lot of people simply don’t have means. This is what their spreadsheets would show.
Oh no‼️😱
I thought you’d like it!
Means means money or financial resources. AS: I have the means to buy a Bentley or I will have the means to buy a house next year.
No consideration for priorities or consequences in the equation?
In theory I could but a few Bentleys, but I don’t consider using all available resources living within our means because if I made that purchase our means would decline considerably as would the living within part.
In terms of the definition, the use of the word relates to someone’s evaluation of whether or not they can afford to buy something. The answer is binary; they either have the means or they do not. The term is strictly financial and no judgement of anything else is implied.
I’m surprised at that. That seems to imply I could afford something even if I define it as being able to make the monthly credit card payments.
I guess that’s right as long as no other considerations come to play.