In our pro-debt culture, people are applauded for living within their means.
Success stories appear every day that tell the same tale: “My money was all chaos, and then I created a budget and stopped spending more than I make!”, to which twenty congratulatory comments will follow, ranging from “wow you’re so disciplined!” to “omg congratulations this is such a huge achievement for you!”
Why? Because living within your means with so much available credit is hard. Damn hard.
But it’s not enough.
We need to talk about how not spending more than you earn is the minimum — as in, the bare minimum — to enjoy any kind of control over your finances.
Living within your means is like getting a C in math class: congratulations, you passed, but no one would trust you to teach Calculus.
Eventually it runs out
Credit — and the lifestyle it affords — are easy to access, but only to a point. Eventually, your loans, credit cards, and lines of credits will be maxed and no one will set you up with another. You will eventually be forced, whether you like to or not, to stop buying things you can’t afford.
Being completely maxed out is a grim rock bottom isn’t real until you declare bankruptcy. Most people won’t let it get that bad, but plenty will. The point of the matter is, spending more than you earn will eventually no longer be an option, and you’ll have to abide by the painful limit of your income. Which is why living within your means is nbd. Everybody eventually has to do it.
Living within your means is simply Part One of a very long story. It’s the beginning — not the end — and we need to do away with giving it so much time on centre stage.
Sometimes we worship how little someone can live on. Someone subsisting on $15,000 or $25,000, or maybe a family making it on $40,000, is met with praise. Guess what? If you’re making $41,000 and living on $40,000, that’s not an accomplishment.
If you’re spending more than you make, you don’t have any other choice except self-destruction. Your options are live within your means, or not, until you’re forced to.
In other words, if you’re not currently living within your means, you’re living in a false reality that will probably end very soon, and then you’ll have to join the rest of us.
It’s important to avoid financial distress, but it’s also important to pursue financial security
Treading water isn’t the same as swimming, it just means you’re not drowning.
That’s what living in your means is: not drowning. But I want you to swim. Better yet I want you to sail. On a yacht. Towards white sand beaches and mojitos.
Do more than try to live within your means: strive for financial independence.
The truth is, living within your means still comes from a scarcity mindset instead of an abundance mindset. It’s focusing on less, instead of more, and that’s the least fun (and least effective) way to grow your wealth.
How to do more than live below your means
The steps to scaling up your financial efforts are straightforward:
Get rid of your debts. The less money you owe, the more money you have. It seems straight-forward but I say it again and again because we’re still a debt-loving society. In our low-interest rate environment, many people feel comfortable ignoring their debt balances, but the more you pay in interest, the less you have to add to growing your own wealth.
Save a large percentage of your income. In Canada, the savings rate is about 4%, which means most people are spending 96% of what they earn. While a little bit of savings can go a long way, a lot of savings goes a lot further. Strive to save a minimum of 10% of your income, but boost that to 25% or more once your debts are paid off.
Start investing in the stock market. Investing is scary and complex, except that it isn’t. The stock market is more accessible than ever, and investors have never had more choices than they do today. Whether you want a completely hands-off experience from a robo-advisor or mutual funds, or you want to manage your own portfolio, there’s no excuse not to invest.
Increase your income. You can cut your expenses all you like, but eventually your reach a limit. Your income, on the other hand, is limitless. There’s nothing stopping you from earning an extra $1,000 or $10,000 this year. The more your increase your top line, the less you have to worry about your bottom line. Living within your means is terribly easy when you have lots of means.
Reduce your spending. Don’t renovate your basement. Stop buying new cars. Get a roommate. Take a staycation. It’s easy to take one big action to reduce your spending rather than trying to trim your latte budget or clip coupons for groceries. Identify your three largest spending categories, and reduce one by 15% then forget about the rest.
Do more than the minimum. Do the maximum, and reap the rewards thereof.