Living Beneath Your Means Is the Ultimate Financial Plan

A lot of ink and cyberspace is dedicated to finding ways that help you to achieve financial independence. They tell you of ways to cut your credit card interest rates – all the way down to zero – to earn more money on your investments, and how to earn more money in your career. Those are important, but there’s one fundamental truth that represents the foundation of financial success, and that’s living beneath your means.

That is the ultimate financial strategy, and until you can master it, the rest are just bells and whistles. Living beneath your means is also a basic part of the mobile creative life- and work-style.

The Mechanics of Living Beneath Your Means

Living Beneath Your Means Is the Ultimate Financial Plan
Living Beneath Your Means Is the Ultimate Financial Plan
More than anything else, living beneath your means is a habit that becomes a lifestyle. It’s also a financial philosophy, since it represents the very way that you think about money. In fact, living beneath your means actually starts in your mind, and then becomes a habit – an all encompassing habit – that affects all of your financial decisions.

Living beneath your means is a commitment to live on less than you earn, no matter how much you earn. If you earn $50,000 per year, you live on $40,000. Exactly how much you live beneath your means will vary from one person to the next, so there is no hard and fast formula. However, the less you can live on, the more that you can save, and the more quickly that you will reach a point of financial independence.

Living beneath your means will also look different depending upon income level. For example, a person with a high income may be able to live a lifestyle that looks very comfortable on the outside, but still be able to save and invest a considerable amount money. But for a low-income person, it could appear on the outside that he or she is living only a step or two above a homeless person.

It’s all about living on less than you earn, no matter what that number is. And it can work no matter what the income number is. From personal experience, I can tell you that I’ve known people who look “poor” on the surface, but have very generous bankrolls. That’s more appealing than the person who lives in luxury, but owes money on everything he has.

The Misery You Will Eliminate by Living Beneath Your Means

There’s no question that if you are in a lower income situation, living beneath your means can be uncomfortable. So why would a person do it? Because living beneath your means can eliminate a lot of big picture misery, including:

  • Being broke. Living at a relatively low standard of living, but having a decent amount of money saved, means that you’re never broke. That’s worth trading for a sizeable amount of creature comfort.
  • Sleepless nights. A poor person who can sleep peacefully at night, is better off than a rich person who can’t.
  • Fear of losing your job. The person who is living beneath their means doesn’t fear the loss of a job, because they always have a savings cushion, and because they are confident that they can adjust their standard of living downward to fit whatever income they have.
  • An obsession with debt. People who are in debt tend to be obsessed with their debt. They worry about the interest rates that they’re paying, the remaining credit limits that they have, and what their credit scores are. A person who lives beneath their means typically doesn’t have debt, and doesn’t even need to think about it.

I have a strong feeling that most people who are in tight financial positions would gladly trade a more comfortable lifestyle in favor of eliminating the above problems.

The Many Payoffs of Living Beneath Your Means

We just talked about the problems that are eliminated by living beneath your means, but let’s take a look at the payoffs – and they’re huge:

  • Gaining control over you budget. Most people live from paycheck-to-paycheck; when you live beneath your means, you always have more income than expenses. That’s control, and it’s liberating.
  • The ability to get out of debt. Many millions of people are in debt, and feeling that they can never get out. But if you can live beneath your means you have extra money every month to pay off your debts. And if you have been living beneath your means long enough, you probably don’t have any debt.
  • The ability to save money. Pure savings are the ultimate form of financial security. If you have several months of living expenses in the bank, you are a lot less concerned about income disruptions or unexpected expenses. And the more money you have saved – or invested – the less concerned you are with the day-to-day ups and downs of your life.
  • The ability to quit a bad job. If you can live beneath your means, you have little or no debt, and you have a generous amount of savings, you have the ability to quit a bad job. This is just a guess, but you would probably enjoy whatever work you’re doing a lot more if you weren’t so dependent on the next paycheck.
  • The ability to start your own business. The money skills you learn from living beneath your means is closely connected with self-employment (being able to convert scarce resources into an income or asset). It also gives you the financial flexibility to manage the less stable income that self-employment commonly brings in the early years.
  • Freedom from worry. What ever income level you’re at, if you can live beneath your means, you just don’t have as many worries. It’s likely that most of our worries in life come down to finances, if for no other reason than the fact that everything costs money.

Any one of these payoffs has the potential to make a substantial improvement in your finances. But a combination of two or more will be life-changing.

Luck and Hoping For the Best Will Not Improve Your Finances

A lot of people trudge through life hoping for better for themselves, but not having an action plan to make it happen. They rely on luck, or even optimism, as some sort of magic bullet that will bring them financial independence. That’s the basic reason why people buy lottery tickets, and it also explains the fascination so many have with the “make me a star” programs on TV – we desperately hope that can be us someday.

But you have to face the reality that such an outcome extremely unlikely, and becomes even less probable as you get older. And even if you’re hoping for such a thing to happen, it’s best to have a plan in place while you’re waiting. Living beneath your means is that plan, and it’s one that virtually everyone can execute, as long as you have an income.

Living Beneath Your Means Will Be the Only Way Forward

Unless you expect to inherit a fortune, living beneath your means will be the only way toward financial independence. For that reason, you should embrace the strategy today, and get moving. If you’ve never lived that way in the past, it will take a while just to get used to it. And as you can imagine, it’s a long-term plan.

In fact, it’s a plan that has virtually no end – each year you spend less than you earn and bank the difference. And each year, your financial situation improves a little or a lot, depending upon how much you can save and what your financial situation was before you began living beneath your means.

There’s nothing fancy about this strategy, which is why it gets so little attention in the media. No one will pay for a strategy that involves a lot of personal sacrifice and self-denial, particularly for a plan that will take years to carry out.

But if you know anyone who is financially self-made, you can bet that they spent many years living just that kind of lifestyle before they reached the point of being visibly well-off. And there are more than a few people out there who are extremely well-off, but simply don’t live that lifestyle.

It’s a nice choice to have, and it’s one of those options that living beneath your means provides. It’s not fancy, and it can even the ugly, but for the vast majority of people it’s the closest thing we have to a guaranteed way to reach financial independence.

Do you practice living beneath your means in your own life? What advice would you offer to others?

( Photo by AaronPatterson )

4 Responses to Living Beneath Your Means Is the Ultimate Financial Plan

  1. My mom and step-father attained the holy grail of living beneath their means. Through real estate holdings, they were millionaires but lived like paupers. My mom seldom bought anything new, pinched pennies on everything. They bought things at estate sales and auctions instead of at a store. Their house was an old run down farm house…and he was a builder of homes! I’m not quite as rigid as them, but we definitely practice living beneath our means. It’s really pretty easy to do at our income level. I can see how many people who earn less have a more difficult time but we have been in that position also and it can be done.

  2. Hi Kathy – High income definitely makes it easier, and so does being raised by parents who lived beneath their means. That said, I think that TV and easy credit make it harder to do than it’s been in the past. There’s so much cultural pull to spend to the max of your ability and beyond. It becomes a treadmill that’s very hard to get off of, not the least of which because there’s often hold-over debt attached to the excess spending that has to be overcome before you can see any progress. It’s definitely a counter-cultural phenomenon in this day and time.

  3. I agree Robert, it’s an often overlooked survival skill. A lot of people don’t become aware of that until they lose their job and realize they have nothing to fall back on. After that, some “get religion” about saving, while others…go back to old bad habits.

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