It’s interesting how sometimes a word or a phrase can have a connotation for someone that others don’t have. Recently, it crossed my mind that something inside of me cringes at the phrase ‘live within your means’ yet, I feel empowered by the idea of living on less than I earn.
The directive, ‘live within your means’ is advice that I heard frequently growing up and for me, it always seemed to suggest that people should live within their ‘station’ and be satisfied with their lot in life. Looking back, I’m pretty sure this is far from what was intended when people gave this advice. Still, for me, the phrase does not appeal to me in the least.
While living on less than you earn is basically saying the same thing, my association with the phrase is not only pleasing, it’s empowering!
Consider this, do you know or have you heard of someone who got ‘stuck’ in a job that they hated? They’d like to find something else but other jobs don’t pay as well and their monthly bills won’t let them make the switch.
I bet you can at least imagine that situation or maybe you even know someone in that situation because it isn’t that uncommon.
I don’t want that to be YOU.
Living on less than you earn is one of the keys to avoiding that trap and one of the best ways to live on less than you earn is to pay yourself first.
Now, that’s another thing that I heard growing up but didn’t understand. Now I do. The basic idea is to have money come out of each paycheck and go to savings (and investments, too, unless you’re just starting on savings).
Think about it as taxing yourself – the government knows that we won’t have money ‘left over’ so it takes a cut from the top – we deserve the same. And what’s more, once you set it up, you hardly need to think about it. Set up the payroll deduction (preferably as a percent rather than a flat amount, that way the amount of savings will increase as your income increases) and then the money can grow automagically.
Over time, try to increase the percent that’s going to savings and try to challenge yourself to live on a lower percentage of your income. The income that you’re not living on can help to grow your savings and it’s also okay if some of that goes for debt reduction, (beyond minimum monthly payments).
Think about how this can be helpful if you decide to recareer but your new dream job (or the jobs you’ll take on your way to your dream job) don’t pay as much as your current job.
This to me is the FREEDOM that living on less than you earn can bring!
Not long ago a friend shared a conversation they’d had with a colleague. The colleague and his wife had arranged their finances so that they lived on one income and the other was directed to savings.
As I look back at when my husband and I started living together, I realize that we missed this fantastic opportunity. Worse, we were negative financial influences on each other. Separately we were doing okay with managing our money, we were practical and grounded. But when we got together, we went out and spent money. I got into the mindset of setting up our home and one of our past-times together was hunting down sci-fi collectibles. We finally stopped (slowed down?) collecting when we realized that the collectibles were just taking up space in the hall closet.
Now, I’m eager to encourage new couples to embrace this framework of living on one income (or at least moving in the direction of being able to do so).
Living on less than we earn gives each individual more freedom and the benefits for couples are great as well. Imagine a couple and they know that if one of them gets laid off or decides to go back to school, they can do so. Imagine if they decide to start a family and they get to do so knowing that they can afford for one of them to stay home if they choose, or, they can take turns staying home awhile. The point is that they have more options! And that’s the point of managing our money – it’s so that we can have More and Better Options!
Of course, I understand that not everyone can do it, at least not overnight. Some couples start out with tremendous debt (student loans or otherwise). But much like not everyone can live on half their income right away, there are steps that we can take to start to move in that direction.
Tracking expenses for at least a week, but preferably for a month or even more will help you to see where money is going. If you never use cash, you can actually skip this and just look back through your accounts instead.
Find a few spending leaks to plug up (such as eating out a little less or giving up a streaming service) and start payroll deduction (or increase existing payroll deduction). Also, if you’re already sending more than minimum payments to pay down debt or you’re using a 50/30/20 budget plan, then you may be doing better than you realize. The 50/30/20 budget plan encourages that 50% of after tax income go toward necessities such as rent or mortgage, food, utilities, transportation and minimum loan payments. 30% go toward wants and 20% goes toward savings and debt reduction. Overall, I like this plan but I’d suggest flipping the 30 and 20 so that more goes toward saving and debt reduction. But in either case, following this plan can help you manage your money and help you to keep your basic living expenses within 50% of your income. And that can bring a lot of peace of mind, and More Options!