Live within your means
What does it even mean?
When I hatched the idea of writing a personal finance post I thought I’d explore how to make saving and investing simpler. However, after a fantastic interview with personal finance expert
, whom you’ll hear from next week, I quickly realized that I needed to make this a two-part series. Before we could dive into streamlining and upleveling our personal finances, I wanted to talk about how living small and money are intertwined.
I’ve always been frugal (possibly to a fault), but I rarely talk about money–even with my dearest friends. Nor were these topics explicitly discussed in my family growing up. Money is hard to talk about. It’s easier just to put your head in the sand and ignore the issue.
Attempting to write about the basic financial guidelines that I strive to live by. I realized it all boiled down to one simple thing: living within your means. This phrase is so often used, so timeworn, that it’s easy to ignore. But it’s the very foundation of managing our personal finances—and of living small.
Living within your means seems straightforward, but looking at the different definitions from two online dictionaries reveals why it is so complex. The Cambridge Dictionary sums it up as, “to spend less money than you receive as income,” while Merriam-Webster lists it as “to spend money only on what one can afford.” I would argue these are two wildly different meanings.
If you do the former—spending less than you earn–you’re on the right track, but to truly live within your means you must also be saving. Therefore the latter definition: “Spend money only on what one can afford” is more accurate. I think many people don’t realize that in failing to save they are spending more than they can “afford.”
If we want to build up an emergency fund (a must!), save for a comfortable retirement, buy a home, and help our kids pay for college, we need to save. But too often, we set up our lives so that every dollar of our paycheck is spoken for by our current needs (and repaying debt), so that there legitimately is nothing left over to save. The goal isn’t to hoard the most possible wealth, it’s to build yourself a safety net and set aside money for things that matter to you, instead of mindlessly spending on things that don’t.
One big piece of this financial puzzle relates to the topic of this newsletter: where we live. The unspoken why of why I live small is money. Living in a smaller home allows me to save—and have some money leftover to have fun. Maybe we could “afford” to buy a bigger place, but it would make it much harder, if not impossible, to save and enjoy ourselves.
Many people stretch to buy the biggest house they can, and banks will often allow you to borrow 28-percent of your gross income towards mortgage, but as Katie points out in her book, that means that after taxes and insurance many people are spending 40-percent of their take home pay on housing. No wonder we’re all stretched so thin!
It’s so easy to think that more space will make us happier–that we’ll be less stressed if we have room to spread out (and honestly we might). But more space can also come with a significant expense that may end up creating new stress. This is why I’m always advocating to learn to live with less and find solutions to make do with the space you currently have.
I’m curious: Would you ever downsize to relieve your financial stress? If not, what would hold you back from doing it? Obviously moving is a huge (financial and emotional) decision and some of financial success comes down to a healthy dose of luck, but there are dozens of habits to help you live within your means. I’m sharing some of the tactics I use below.