The Falsehood of "Living Within Your Means"

[jeffrey]

You hear it time and again from the financial experts. Live within your means and all will be okay with your finances. While living within your means is better than living beyond your means, it doesn't address your future saving needs. If you get paid $2000 a month and spend $2000 a month, you are living within your means, but you aren't saving a cent for a rainy day. The true way to get and stay out of debt is not by living within your means, but taking it a step further and living below your means.

There seems to be a negative connotation with the phrase of "living below your means" for many. It conjures up the image that you must give something up that you could have if you wanted. Most people think that "living below your means" entails extreme sacrifice and scrimping and scraping just to get by. The truth is that there is a simple way to live below your means without changing you current lifestyle if you are already living within your means.

One of the best ways to maintain a "living below your means" cycle that you can use for the rest of your employment life is to simply live a pay raise behind. Instead of adjusting up to your higher income the next time you get a raise (what most people do when they receive a raise without even thinking), continue to live on the money you had been living on up until the raise and place the difference into savings or reducing debt. Since you are living as you had been, there is nothing you have to give up or sacrifice when approaching living below your means this way.




For example, if you're earning $2,000 a month and get a $100 a month raise to earn $2,100 a month, you'd continue to live as if you were only earning $2,000 a month placing the $100 raise toward debt reduction or savings. Then if at a later date you get a raise of $250, you'd budget your living on $2,100 with the $250 going to savings or debt reduction. This way you're always living on the money from one raise behind and below your means without ever having to make the sacrifices of cutting back.

A simple way to accomplish this is to set up a system where the extra money from the most recent raise is automatically taken out of your normal spending account. When the money from the raise is mixed into your regular spending account, it'll more than likely get spent.

There are a number of ways to do this. Probably the best is to set up a banking account where you direct deposit your paycheck and then have a specified amount automatically sent to the debts you are paying off or into your long term savings account. You can set up an account with this service at most banks or credit unions.

By deciding to live one raise behind, you can live below your means without it effecting your current lifestyle while paying down your debt and saving for your future.

[pennywise]

One thing with living a raise behind: the concept is a good one but does not account for the increase in taxes. Another issue that affects raises and inflation is how much more will the employer make you contribute to your "benefits". Some raises acutally make you take home LESS money, then what?

[PRICEPLUS]

Maybe the best idea would be to live BELOW your means!

[pennywise]

Priceplus you have missed the point. A raise can actually COST you money by putting you into a higher tax bracket. Benefit costs could rise well above the amount of a raise. I am the best at living below my means and have amassed enough for my retirement. The point was to get people to thinking differently. Oh, today the savings rate is negative for Americans. Anyhow thanks for pointing out the highlight of the conversation.

[PRICEPLUS]

Pennywise.

I apologize for not being a little more lengthy with my thoughts. I realize the effect a raise can have when you move up into a higher tax bracket especially when you get there though overtime.

One must always realize the net effects of tax brackets.

[Haku]

This is from a long time ago, but I'd like to comment on it anyways.

Unless I missed it, one should always set aside a percentage of every paycheck to go towards saving / investing. That way, you can still live "within your means" without taking saving out of the equation.

Ideally though, one should enjoy saving as much as they do spending. This subtle adoption and change in attitude is perhaps even more important than budgeting itself.

Personally, I set aside anywhere from 20% to 40% of my paycheck towards saving and investing. It just depends on my expenses between each pay period. I always push towards setting as much aside as I can, and the more I can set aside, the more it makes me cackle with glee. The point is that I don't think I would have set aside as much if I didn't find joy in it.

At the very least, one should learn to set aside a bare minimum. Perhaps something as easy as direct depositing 10% of their paycheck straight into a savings / money market and pretending it doesn't exist can be a great way to start.

Just my humble opinions.

[elcheapo]

my father taught us to always live below our means thus far it has worked wonderfully

[funnyvalentine]

I live just outside affluent Bergen County, NJ, where my business is located. I live in the smallest house in my neighborhood (if not the state) and when I drive by these 5000 (and up) square monsters, I really wonder what the motivation is for anyone to live there. Does your average family need a family room, great room, eat in kitchen, living room, library, and a four car garage? Especially when most of the families here spend an inordinate amount of time shuffling their kids to soccer and other activities that would make the "family" room an embarrassing testament to how little tiime those families are actually together....

The temptation to have that new car every two years, to have each latest gadget, for every kid to have a cell phone, to eat out four times a week, for every room to have a plasma tv; this is the stuff that drives us out of the realm of 'living within our means'. I doubt whether most of my neighbors have any idea what their means are.

Lest you think I'm a sandle wearing, plastic bag recycling, aesetic nut; no. But this relentless pursuit of status ownership at the expense of personal fiscal comfort just strikes me as crazy and anxiety producing.

Originally Posted by elcheapo

my father taught us to always live below our means thus far it has worked wonderfully

[kraagenskul]

The only problem I see with this method is the problem of rising costs. My last raise has been completely wiped out by higher heating, electricty, and general inflation. I didn't get a raise this year, and I'm watching my gasoline bill go thru the roof. Make sure you can afford to just paste that raise right into a savings account.

[Ima saver]

Haku, if you can save 20-40% of your paycheck each payday, you are doing great!! We never made enough money to do that, but I have always tried to save 10%

[funnyvalentine]

I have a deposit taken out of my checking account every month, which goes to a mutual fund. It is really amazing how it has added up....

[Haku]

Originally Posted by Ima saver

Haku, if you can save 20-40% of your paycheck each payday, you are doing great!! We never made enough money to do that, but I have always tried to save 10%

Thank you, Ima. I doubt I can do that for very long though, because my car is getting old and once that breaks down, I'll be back to making car payments again. Until then, with glee I shall cackle. Oh yes.

[asha]

Originally Posted by funnyvalentine

I live just outside affluent Bergen County, NJ, where my business is located. I live in the smallest house in my neighborhood (if not the state) and when I drive by these 5000 (and up) square monsters, I really wonder what the motivation is for anyone to live there. Does your average family need a family room, great room, eat in kitchen, living room, library, and a four car garage? Especially when most of the families here spend an inordinate amount of time shuffling their kids to soccer and other activities that would make the "family" room an embarrassing testament to how little tiime those families are actually together....

The temptation to have that new car every two years, to have each latest gadget, for every kid to have a cell phone, to eat out four times a week, for every room to have a plasma tv; this is the stuff that drives us out of the realm of 'living within our means'. I doubt whether most of my neighbors have any idea what their means are.

Lest you think I'm a sandle wearing, plastic bag recycling, aesetic nut; no. But this relentless pursuit of status ownership at the expense of personal fiscal comfort just strikes me as crazy and anxiety producing.

I find it amazing, incredible, that people actually live like this. millionaires, maybe. But you are talking middle class people with mortgages!

[ummabdullah]

Gosh 40% would be fantastic.. it doesn't seem fair that her in the uk we have so many damn expenses.. and taxes ..

[kesef]

I find it a frustrating thought. Hard times hit us at various periods in our life. We live simply, so that there's nothing left to cut, and no money left for savings. Maybe if we had told our daughter who was renting our apartment to pay rent when her checks would bounce anyway and wouldn't put our other daughter thru higher education with no financial aid available it would be relevant. Until then, I can just dream - or know that if we keep this standard of living it will be below my means someday.

[lrjohnson]

With the Challenge, I'm living on less than half my net right now.

[The Budget Man]

Originally Posted by kesef

I find it a frustrating thought. Hard times hit us at various periods in our life. We live simply, so that there's nothing left to cut, and no money left for savings. Maybe if we had told our daughter who was renting our apartment to pay rent when her checks would bounce anyway and wouldn't put our other daughter thru higher education with no financial aid available it would be relevant. Until then, I can just dream - or know that if we keep this standard of living it will be below my means someday.

Here's some good news. We all go through times when there are huge calls on our income like getting the family through their education.

At my son's 25th birthday today I was able to see it clearly. Both our older childern are through and our little one is yet to hit those expensive years. Let me encourage you to try to save a little even in the high expense years but when those easy years come along to grab them as opportunities and save.

Enjoy your money
The Budget Man

[funnyvalentine]

I just opened an account at Bank of America, which has a "rounding up" program that goes into your savings account. It's cool.

C

Originally Posted by lrjohnson

With the Challenge, I'm living on less than half my net right now.

[seaar2000]

I have them automatically take out 14% of my take home pay. Make only around $18,000 a year and no matter how tight I get before my next paycheck I refuse to touch that money unless it is an absolute Emergency.

[ummabdullah]

Originally Posted by funnyvalentine

I live just outside affluent Bergen County, NJ, where my business is located. I live in the smallest house in my neighborhood (if not the state) and when I drive by these 5000 (and up) square monsters, I really wonder what the motivation is for anyone to live there. Does your average family need a family room, great room, eat in kitchen, living room, library, and a four car garage? Especially when most of the families here spend an inordinate amount of time shuffling their kids to soccer and other activities that would make the "family" room an embarrassing testament to how little tiime those families are actually together....

The temptation to have that new car every two years, to have each latest gadget, for every kid to have a cell phone, to eat out four times a week, for every room to have a plasma tv; this is the stuff that drives us out of the realm of 'living within our means'. I doubt whether most of my neighbors have any idea what their means are.

Lest you think I'm a sandle wearing, plastic bag recycling, aesetic nut; no. But this relentless pursuit of status ownership at the expense of personal fiscal comfort just strikes me as crazy and anxiety producing.

I really like what you said.. I am going to send my kids to privates school and someone suggested I don't because I don't have a large estate While I like the idea of having 2 seperate receptions (one for the women and one for the men).. I find that people with more than you (or appears to be more) like to stick their noses up... Yet they are up to their noses in debt..