Live Within Your Means

484054258With the wisdom of age and experience I can say with 100% confidence that the key to a successful life financially is to live within (and below) your means.

Never, ever, ever live above your means hoping that your income will catch up. While in some cases your income may catch up, but more likely it will not. And if it doesn’t, you are royally screwed. And even if you are successful and are a significant earner, be careful that you don’t assume that your high earnings will continue forever (remember what happens to those that ass-u-me)

So if that’s the case, why do people live above their means?

1. Their “eyes are bigger than their stomach”. They want items they can’t afford and don’t know how to resist.

2. They have no concept or discipline of creating a budget

3. They are disappointed with their income but hope/wish for a windfall (inheritance, lottery etc.)

4. Their self-images are tied to their possessions, and they “compete” with others for who has the most toys.

5. Their parents never taught them the values of frugality

6. They just don’t understand basic finance.

7. They hold mega parties to show their “wealth”, but underneath the veneer can’t afford to do so.

Here’s the basic premise. It’s an easy one. It applies in business and personal finance:

Income (or Revenue) Less Expenses = Savings (or profit)

So it’s very simple. Spend less than you earn and you’ll have some $ left over to save. Importantly. it is critical in today’s non-pension world to save aggressively for a longer life span than your parents had.

For those approaching retirement, people foolishly think that Social Security will provide a net when they retire. That’s true, but only to small degree. The average recipient receives roughly $1300/month (roughly $16k per year) from Social Security. How far does that go? Even those who max out their social security contributions are capped at $2639/month (almost $32k annually) IF they contributed enough to reach the max, and IF wait until Full Retirement Age (FRA). Is that enough to live on?

So, how much have you socked away in your 401k/IRA? A lot? Or just a meager amount? Again when you live within/below your means you can fund retirement savings.

Most people are financially illiterate. Not high finance. Personal finance. I think academia is remiss in not requiring courses in basic personal finance as a core course in college. That’s a course that has value!

So if you are spending beyond your means, don’t wait to get into deep trouble–you are already on the road and probably already there. Reign in spending today, create a budget, and save for tomorrow. And if/when your income rises, don’t forget the hard lessons you learned.

More Strumings


  1. ks says:

    My grandfather used to say, “Don’t have champagne tastes on a beer budget.” Always took that to heart.

  2. Michael Drabenstott says:

    Three notes:
    1. I remember the CFO at my first internship tell me to “pay yourself first.” Take 10% of your income and sock it away. If you start it at a young age, you won’t miss the money.
    2. I’ve been embracing the ideas of minimalism ( and essentialism ( True happiness is found in experiences and relationships, many of which don’t cost a penny. (Anniversary and birthday gifts for the wife notwithstanding!)

  3. ed williamson says:

    The article seems a bit simplistic but then again someone who never saved a penny may need to start here?
    My personal rule was simple I always lived within my means. So when I started out and made $7K I was very frugal. I rarely ate out and looked for free entertainment and the same as when i moved up the salary scale. So at $90K I was still watching my pennies, which now were dollars. I always managed to save. Simply I did without. I bought everything on sale. I called it doubling my income. If I needed a rake and it wasn’t on sale I bought what I needed when I needed it. I called doing without and inconveniencing yourself false economy. My wife called me tight and she always made sure I understood what was important, that partnership is for another article. I always eventually got what I wanted and I’ve lived a pretty good life. I just didn’t make myself poor to do it. Again simple stuff.

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