Within My Means
Posted on July 11, 2005 8 Comments
As the world of personal finance blogging grows, I’ve seen the phrase “live within your means” used as advice several times (here, here, here and here, for example). A Google search alone turns up more than 16,000 hits.
I think the sentiment is beneficial, but the phrase may be cliche. When a helpful phrase becomes overused, do people cease to pay attention? Do eyes glaze over while these words escape the brain like a caged bird set free? I asked four friends for their opinions on the definition.
While unscientific, their answers somewhat suprised me. Each woman understood the phrase “live within your means” as something different. All related the meaning back to income (the “means”), but each woman assigned the word “live” to fit her ideals. Answers ranged from “staying on a budget within my salary” to “paying monthly bills on time, in the correct amount, while still being able to have fun” to “afford the lifestyle you want to live.”
I expected the phrase “live within your means” to be ineffective because it’s become overused. Turns out, when used as a piece of advice, the phrase is ineffective because it’s too vague. Each person reads the phrase to fit their current lifestyle. The phrase becomes a reinforcer of current behavior, rather than a goal for which to reach.
Despite their differences in definition, my friends seem to understand their financial situations – three said they lived with their means, and one said sometimes. When asked if they understood their current financial situation, two agreed outright. The other two said they understand their financial situation, but had a hard time following it and noted that it changes frequently.
I was even more impressed by their answers to questions related to increased income. All agreed that they increased savings when they get a raise, and most noted that they increased spending to pay down debt.
Again, my survey to discover the effectiveness of “live within your means” was highly unscientific. Truth be told, I probably made up my own meaning. I suppose the following bullet points encompass my definition:
- Expenses per month should not exceed income per month.
- When your salary is increased, raise savings and pay down debt before spending additional disposable income.
I think the idea behind the phrase holds good advice. But after hearing from my friends and considering my own definition, I wish columnists and authors would stop using “live within your means” on their lists of best financial advice and start laying out clear suggestions and plans that average people can understand.
While we can all deal with a bit of cliche from our favorite authors, our checkbooks cannot.
What is your definition of “live within your means”? How does it compare to ours?
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PS- After I wrote this article, which I thought was completely original, I found this. So much for my hard work!
PSS – Hmmm. I note my shameless use of cliches in past blogs and blush. Yes, you can demand better from me, too.
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July 11th, 2005 @ 1:13 pm
May be it is overused, but essential to
attain financial freedom!
July 11th, 2005 @ 6:23 pm
I agree with the comment, and the original post that the phrase (which I am also guilty of using) can mean too many things. We all read about the young Wall St. types who are making $200k a year but manage to blow $201k a year, obvious example of not living within your means. But is someone who makes $50k a year, spends $45k and saves $5k living within their means? Maybe, but it depends on age, lifestyle goals, retirement plans, etc. And all those retirement savings calculators assume a lot of factors that could shift wildly.
thanks, good food for thought!
July 11th, 2005 @ 6:34 pm
Hmm..I don’t see the confusion. I always thought live within your means to mean just that, live within your means. If your “means” are a yearly income of $60000 and you spend more than that (including tax) then you are not living “within” your means. Isn’t that common sense? But then, as my mom keep repeating ad nauseum apparently common sense isn’t that common! To me, living within my means means never spending more than I can afford through my current sources of income. e.g. if I want to buy a LV handbag and I can pay for it in cash (either from savings or current income) or pay off the credit card balance in full the same month then it’s within my means. Otherwise it’s not.
July 11th, 2005 @ 10:10 pm
I have enjoyed reading your blog and this post in particular has given me the impitus to start (not sure about continuing) my own blog.
Anyway, I think you need to look at “living within your means” to mean that when all is said and done, you will eventually be able to retire. Therefore, you are not spending everything you make, and you are saving enough to eventually retire and not be a burden on your family. Just my two cents.
Thejester
July 11th, 2005 @ 10:19 pm
As an aggregate, our whole country fails to live within its means…and the rest of the world just loves financing our (sometimes conspicuous) consumption. Sooner (probably not later) it will be our demise. Read this great piece on the twin deficits: http://www.roubiniglobal.com/archives/2005/06/setser_and_roub.html
Average citizens are not putting two and two together (or they are too busy taking out an interest only loan to get into the real estate market) but the smart money is moving fast.
Thanks for you practical advice style. Best,
July 12th, 2005 @ 2:11 pm
I think living within one’s means is basic. Not to do so is not very wise, and to not pay one’s bills is stealing. I have always believed that and still do to this day. Perhaps that’s why I have so much money in investments. Check out my blog, http://www.stockdiscussion.blogspot.com
July 12th, 2005 @ 9:50 pm
All great comments – thanks! I agree that “live within your means” is common sense to everyone – but everyone seems to define it differently.
To answer Eddie’s comment, I know plenty of people who blow more money than they make each month, put things on credit and then only pay the minimum. Stealing is illegal, yes, but credit is not. And that’s the challenge for many people.
When credits come so easily, and when material goods seem like the key to status and power, spending beyond your means is not difficult.
The challenge is placing an emphasis on priorities of greater importance. A new sweater or pair of shoes might make you feel great now, but won’t buy you a retirement. Investing that money, while rediscovering and enjoying the simple (non-material) joys in life is what I’m trying to do.
July 17th, 2005 @ 9:43 pm
If people don’t understand living within their means it’s probably because they don’t do it themselves.
Living below your means could be defined as follows: You earn $5000 per month and only spend $4995 each month, not including investments. While this is not an entirely bad way to go, you’re still not putting any money away.
My belief is to live well below your means. ie… if you make $5000 per month, spend only $4000 including debt payments etc. You have a full $1000 to save.
Putting a reserve in the bank not only gives you peace of mind and reduces stress, but will give you a back up in case you run into problems down the road.
Live below your means.
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