Growing up, my Dad would tell me these wise words: "Those who live within their means rarely come to shame". The meaning of this saying is that when we choose to live within our income limits, we are much less likely to experience financial difficulties. These words have stuck with me through the years, and I've found them to have have stood the test of time.
I know there are many who would scorn this timeless financial advice. For them, life should be lived in the moment without caring about tomorrow. They live by this principle: "I would enjoy my life today, for I do not know what tomorrow may bring". Well, we need to learn to enjoy the moment and not put off living. However, it's absolutely foolhardy to borrow from our future to pay for today's expenses. And that's exactly what we're doing when we're not living within our means. Believe me, I have seen enough financial wrecks caused by folks' unwillingness to live within their income limit.
While I appreciate my father's wisdom about living within one's means, I'm starting to think it is no longer sufficient in today's precarious economic situation. That is why I'm suggesting something more radical. It goes without saying that I'm not throwing out his principle. Rather, I'm building on it. I'm advocating that people go beyond living within their means and start living below them. I understand this is a radical shift, especially for those who are still struggling to stay within their monthly budget. But I believe this is a shift that is highly rewarding, and it might be just what you need to turn around your finances. But, what is the difference between living below one's means and living within it? And what makes the former better than the latter?
Well, living within your means means that you are spending only what you can afford based on your income and expenses. It involves creating a budget and sticking to it, which can help you avoid overspending and accumulating debt. Living below your means, on the other hand, means that you are spending less than what you can afford based on your income and expenses. It involves being frugal with your spending and making intentional choices to save money and reduce expenses. Maybe an example here would help:
John and Harry both earn $60,000 per year. John chooses to live below his means by spending $40,000 per year and saving the remaining $20,000 for emergencies and future goals. Harry, on the other hand, lives within his means by spending all $60,000 of her income on expenses.
Living below his means, John can build up an emergency fund, invest for retirement, and save for future goals like buying a home or taking a dream vacation. Meanwhile, Harry is living paycheck to paycheck, without much financial cushion for unexpected expenses or opportunities.
Here is a more practical example:
John and Harry both earn $60,000 per year. Now, John and Harry both need to buy a car to commute to work. John chooses to live below his means by purchasing a used car for $10,000 that meets his needs for reliability and transportation. Harry, on the other hand, lives within his means by purchasing a new car for $30,000, which is within his budget and meets his transportation needs.
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By living below his means, John was able to save money by choosing a used car that meets his needs without overspending. This allowed him to keep more money in his budget for other priorities, such as saving for retirement or paying down debt. Harry, on the other hand, chose to live within his means by purchasing a car that was within his, but not necessarily the most cost-effective option. While a new car may have some advantages, such as a warranty and lower maintenance costs in the short term, it also depreciates quickly in value and costs more in the long term.
I know I'm calling on everyone to start living below their means. But I want quickly explain what living below your means is not, as I do not want you to misunderstand this amazing concept. Living below your means doesn't necessarily mean being miserly or depriving yourself of enjoyment. For emphasis, living below your means does not necessarily mean living a life of deprivation. Instead, it's about finding a balance between enjoying your life and being financially responsible. It means being mindful of your spending habits and making conscious decisions to manage your money wisely. Essentially, it's the practice of making conscious choices about how to spend your money, prioritizing your financial well-being, and saving for the future over immediate gratification.
So if you're already living within your financial limits, I'm encouraging you to step up your financial management by practicing living below your means. And if you are still spending more than you earn, or you are in financial troubles, this is the place you need to be. While both concepts are important, living below your means does have some advantages over living within your means. By living below your means, you can:
In conclusion, both living within your means and living below your means are important for achieving financial stability and success. While living within your means is a good starting point, living below your means can provide additional benefits for achieving financial goals and improving your overall financial health. By living below your means, you can reduce financial stress, achieve financial stability, and increase your chances of achieving long-term financial goals.
