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.
Great points in here. Always better to be sailing towards mojitos! Keep up the great posts. Cheers
“Living within your means is terribly easy when you have lots of means.”
THIS THOUGH FOR REAL. The one thing that, more than anything, has allowed me to hit my savings goal every single month (no matter what expenses come up) is increasing my income. And maybe it means asking for a raise, or getting a new job, or building a side business, but like, doooo ittttttt.
Mo’ means, mo’ problems.
jk that’s a lie. Money is super fun, and the more of it you have, the more fun your life is.
You said it sister.
F- yes! Making more money is the best thing I’ve ever done and seriously changed my financial trajectory.
Great points Bridget. It’s all about finding ways to increasing your overall saving percentage and decreasing the amount of debt you have. While reducing expenses is important, I argue that increasing income is just as important. The two go hand in hand.
This is a great post. Unfortunately I think the reality is so many people are just trying to get out of debt that the idea of doing more is a far off dream. The more we talk about it hopefully the more people will be encouraged to thrive, not just survive 🙂
A big thing too is being okay with the social stigma that comes from saying you have an old car or are doing a staycation this year. My car is 10 years old and I contsantly have people telling me how I SHOULD buy a new car or DESERVE a new car, even though mine is in excellent condition! Takes willpower to go against the norm, but it’s worth it.
I found it a lot easier to put money towards my debt than save now that I’m debt free. It was easy to see the end point then, but now I’m working towards a much more ambiguous and far off goal. I am struggling since I want to be financially independent and retire early, but I also don’t want to wait that long to travel and see the world. I’ve struck a balance by having a minimum that I save towards long term goals (25% for retirement) and my other savings are more like planned spending, mostly to travel. Next step: increase my income!
Great post, Bridget! I think you are right that too many people get applauded for just breaking even each month when in reality, they need to be saving 15% to ever retire and much more than that if they want to retire early – at least in the U.S.
If they were a business and they were only breaking even, I don’t think they would stay in business very long, right?
I think millenials need to be particularly aggressive with our saving given that we should plan to have our retirements entirely self-funded with limited help from companies/government. I’ve found savings goals change significantly depending on stage of life so your goals should be dynamic. Based on my own experience, long-term savings were low immediately after school, but trended up after I established an emergency fund and saw income gains; peaked in my late 20s at 50-60% of gross income when my wife and I were DINKs (Singapore only has a ~10% income tax rate); now down to about 10% with starting my family and my wife staying at home. Hope to push that back to 20% with more income gains in the near future…
Hear hear. I was making half of my current income when I started working. I got by, but life wasn’t all that fun, let’s be real. I’m way happier and way more secure now, and earning more has been the key to that. I feel like I’ve stumbled into this new-to-me club – I could never have imagined this in my old industry. Power to the low income types who get by and are happy but that’s not for me, I want much more than that.
“Living within your means is not drowning,” I like that, it’s an incredible point. Sometimes people have a misconception that just saving will lead them to financial independence too. It’s a component of many other working parts, as you’ve mentioned above. Dealing with debt, investing, and saving are all critical aspects.
I love everything about this article. Bridget you are so on point. Living within your means comes from a scarcity mindset. I am all for abundance. Saving 15%-25% of income is doable if people decide to make the right choices. Most of the times we don’t. It took me a long time to understand that but now that I do. I save 30% + always and spend the rest of experiences. Great post