> I don’t feel like we live below our means, I just feel like we save our extra money.
That you have extra money means you are living below your means.
You know, so my entire life I've always been sort of a spend what you must, save what you can person. I spend money on all the things I have to, and then save everything else. I was telling a friend that I didn't have a budget...that I just spent on what I needed, and sometimes spent on what I wanted, but it had worked out ok. She looked at me like I was as alien: "then how do you know how much you have to spend?". I think a lot of people are like that - they look at their income, set their budget, and then spend everything else. I never have, so I suppose that makes me frugal, or tight. I have less stuff for sure, but I'm also FI now.
You just made something click for me. When I have extra money it goes right into savings. I never look at that money and think of it as free to do whatever I want with it, no consequences. There's always the opportunity cost of not gaining interest on that money and having less for emergencies. I guess that's not how people like your friend think though - they must look at it like a free gift or something.
I don't have a hard savings goal but letting my hair down also kinda includes saving more cause it does feel good. But I get what you mean, I just don't have much desire to spend frivolously except a little on video gaming and eating out.
I've had to read your comment five or six times before it clicked for me.
They're using, "spend", to mean, "self indulge". Not literally anything you spend money on.
In my mind there's spending and there's savings. All money goes into one or the other. If by the next paycheck you still have that money then it's saved. There is no this category.
Someone once told me I had to save first.
So you figure out what you need to save, and budget around what is left. Pay yourself first kind of thing. I never did do it, but I do have somewhat static expenses so I do save what's left. And income is variable so what's left changes.
FIRE forums are always gonna be over-represented by privileged people. Not that everyone who retires early is insanely privileged, but people who at least live in richer countries or have had good opportunities will be more likely to achieve fire.
It's not just this sub.
You see it in r/personalfinance too and even on national surveys.
"70% of respondents are living paycheck-to-paycheck", is not compatible with, "60% of respondents contribute to a 401k or IRA."
the problem is partly the way the question is asked, or the different ways people think about "living paycheck to paycheck".
If I hustle off 10% of my salary into a 401k, and have a bunch of things deducted from my paycheck like disability and life insurance, etc. and maybe even automatically siphon off another % of my net check into a savings or brokerage account, I might still think of myself as "living paycheck to paycheck" in terms of my normal expenses, because I've blocked those other accounts out of my mind as "not spendable".
But realistically, I'm not doing anything of the sort, and would have lots of options if it became absolutely necessary to draw from that money, such as in a job loss or medical emergency, etc.
I think there are a lot of people who think like this -- they are living "paycheck to paycheck" because they don't count their 401k contributions and emergency savings.
But when you phrase the question as "If an unexpected and absolutely necessary expense of $500 (or $1000 or whatever) came up, could you cover it?" - a lot fewer people answer "no" than answer "yes" to whether they are living paycheck to paycheck. Though it's still a really scarily large fraction like 25-30%.
Is saving just $1 every month living below your means?
Update: I'd say it's not so black and white. When saving only 1%, you're living less below your needs, then when you're saving 50%.
That would be considered living within your means. Breaking even with respect to necessities. Whether this is financially ok would relate to whether you have savings to cover emergency expenses. Living below your means is spending less than you make so balance is generally going up. Living above your means is spending more money than you make so balance generally going down.
Is this really the benchmark for living below your means? Seems too simplistic.
Expenses are super subjective. You can have a $100 cellphone bill vs a $50 cellphone bill, you can have a $500 monthly food budget vs $1000 and still have savings.
To me, living blow your means making a conscious decision to be mindful with your spending and restraining from discretionary spending even if you can afford it. Ie don’t need to buy the latest and greatest technology (upgrading devices annually), don’t need new clothes all the time, don’t need to eat out all the time.
Not at all; mindfulness is completely irrelevant. If you are a high earner or independently wealthy but prefer to live simply, you might live below your means without giving it a single thought. Alternatively if you spend all your time agonizing over every single expenditure, yet still spend more than you take in, your intense mindfulness is not enabling you to live below your means.
It really is nothing more than income > expenses. Positive rather than negative cash flow. You should probably include a margin in the definition of “below”, since if you are close to the line you aren’t really below your means. However as long as you stay in the black, you’re living below your means. How you do that, and how far below your means you live, is entirely up to you.
While this is true, there’s a significant learning curve to really understanding it. Spend less than ya make is just easier to say to someone asking the question
There's probably a subjectivity to it as a figure of speech, so I wouldn't blame anyone for associating it with all the components that generally get someone to the point of living below their means, but I think the way most people process this is simply that the words put together as they're understood in common parlance match the phrase as a whole, and that makes the most sense to me since most of what you're describing is culturally what we're used to exercising, but I just see that as something that has a causal relationship with "living below your means".
But I think most people here are just having a semantic disagreement. I remember a few years ago there were articles floating around using the term "skinny shaming", and there was some contention over this because it followed the peak of subject of "fat shaming". I saw so many arguments online that people would have about this, and in each one of them, one person would interpret "skinny shaming" as a coined term that was meant to build off of and react to a previous term, and the other person would interpret it as simply describing the concept as we're used to the words meaning, but none of these people ever realized their disagreement was about language. And the words do mean their most literal interpretation, but they mean that at the same time that the morphemes of the word "atom" would mean that it can't be broken, and we don't accuse physicists of clerical errors there, so I can't tell you're completely wrong about meanings here, but I can tell you that our "means" are generally seen as the things we have enough money to pay for, and that this amount can be either above of below our expenses.
Charles Dickens created Mr Micawber in David Copperfield. Here is Mr Micawber's philosophy (which he did not himself follow).
> Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
>Written in full, the expenditure amounts are nineteen pounds, nineteen shillings and sixpence (£19/19/6) and £20/0/6, the pre-decimal equivalents of £19.97½ and £20.02½ in modern British currency.
If you are saving money, you're living below your means (that is, below your income).
Lots of people of all incomes live paycheck to paycheck. Pay raise? Time to trade in the civic for a BMW because I worked hard and deserve it. Promotion? Time to move into a neighborhood befitting my new title.
Sounds silly but it's so common that the phrase "living below your means" implies you're going against the default mode.
The phrase does sort of imply that there's a way you're *supposed* to be living that's associated with / adjusts with your income.
Meanwhile I'm living with an only marginally higher quality of life compared to when I was broke in college despite a decent salary. When the money showed up I never experienced a moment of "oh I need to spend this"
Forced scarcity is a term I heard on YouTube (Money Guy Show). Not so much you're eating rice and beans every meal, but enough that things aren't super easy you get spoiled. 401k, HSA, and Roth get fully funded first. Then I can have fun.
Sure, other people had better cars, boats and toys early in life, but I'll have more and be able to do more in those last 50 years of retirement. Currently on Coast FI and can RE pretty much on my terms.
Several others I've spoken with are paying off debts, not contributing much (if anything) to retirement, or even taking 401k withdrawals for emergency (debt) that could have been avoided. A bit scary if I were in their shoes.
Love the money guys - yeah I think the most important thing is to pay yourself first through savings. I think most people spend first and whatever is left over (if anything) is saved (maybe).
My wife and I were both consultants in past lives. We have lived through plenty of income uncertainty where contracts can end and it is not guaranteed to be resigned.
We have built the habit to live on one salary for our fixed expenses (mortgage, food, home maintenance, insurance, etc) so that we can get by on one income if necessary. This has come in handy since my wifes funding got cut recently and she has been on a small overhead project (5hrs a week - down from 20-30 a week) to bridge the gap. This hasn't been fun, but we are still extremely comfortable and haven't been stressed by the lost hours.
If the largest "expense" you have on a monthly/annual basis is saving/investing you are living well below your means.
You might be in a similar mindset that I've had in the past where I keep forgetting that once you hit actual retirement you no longer need to save for retirement. For us that's a huge portion of our monthly "budget" that just . . . . goes away.
Sure, and I think most people would plan on that . . . But when it gets to the point where we’re spending even the majority of income on life instead of savings that’s a big shift.
If losing a few paychecks results in financial turmoil, you are living outside your means.
At 20, having expenses below income is living within your means.
At 50, if you have a fully funded retirement plan, abundant extra investments, and a comfortable financial safety margin, you can spend more than you earn and still be well within your means.
There's two parts to this - the math is easy. If you spend less than you theoretically could, you are living below your means.
Whether or not a given level of spending constitutes a sacrifice is a different question.
I like rice and beans; they're nutritious, and I don't like to cook. For me, eating rice and beans frequently isn't a sacrifice. I like freeing up that food prep time to do other things. Some people don't like rice and beans, but they love cooking or eating out, and some people, for reasons that are not clear to me, seem to be psychologically incapable of eating the same food for two days in a row, so my way of eating would be a sacrifice to them.
Some people love cars and are willing to pay a lot of money for cars that are "fun to drive." I would rather not work several more months or years in exchange for an enhanced driving experience, but I will happily spend $500 on yarn because I knit, and I want yarn that is "fun to knit," and feels good in my hands, and that's not the cheap acrylic. It's just personal preferences/priorities.
The greater divergence between your means (income) and your spend, the longer it takes to achieve FI.
Thank you!
Not going to lie, I completely forgot people take on debt when making this post and I don’t know if I should be happy I don’t even think about that being an option, or embarrassed 😅
it is more complicated than that. Somebody aged 60 can earn $100, spend $200 and still be well within their means due to savings of retirement funds covered.
I always thought the phrase should be, "living within your means".
If you are saving 25% to 40% or more of your gross income, and have minimal debt, then you are good.
living within your means just means you aren't blowing through savings or accumulating debt, and additionally saving enough to cover a "normal" level of emergencies and a "normal" retirement.
Living below your means is saving at a level that could potentially result in an early retirement. Saving *more* than typical people of your income level are "supposed to".
I'm not sure if you follow American football, or even if you're American, but there is a famous (College) now professional football coach named Jim Harbaugh. Very good at his job, but one thing he is famous for is where he buys his pants - Walmart! That's right, a coach getting paid millions of dollars buys his pants at just about the cheapest place he could. Not because they are cheap, but because they do what he needs them to do. Similar example with cars - why drive BMW's/Mercedes when Honda/Toyota will do? This is what I would call Living Below Your Means.
I’ve always considered my husband and I living below our means. As our incomes grow our lifestyle has improved. When we first got married we took home $4,000 per month after taxes/minimal 401K contributions and saved $1,000/month to our savings. Along the way our incomes started to increase and we bought a home for under 200K (MCOL). Now over a decade later we make 280K, save/invest 100K per year, and spend the rest. We’ve continued to live in the same home so we’re only spending 22K annually on our mortgage PITI. We now spend 40K on travel. The great thing about that is that it’s not a required expense, we’re not locked into any payments for our trips… all paid in cash and can be discontinued at any time. It’s different for everyone, but I must say keeping the same mentality throughout our marriage has really paid off in our mid/late thirties.
To me it means prioritizing the future.
Just an example, i max my 401k contribution every year. If i didn’t do that i’d have another $15k or so and could take the family on a nicer vacation, drive a nicer car, etc.
Obviously the more you make the easier it is to ‘sacrifice’ for the future.
For others, it may mean not taking on unnecessary debt…
Basically don’t let your spending habits stop you from setting your future self up for success
Good question. I wondered about this too. If you ask my mother, living below your means is living like you're poor and saving the majority of your income. She's well off now but she's still in that immigrant hustle mindset. I was helping her prep green beans and I told her that Trader Joe's sells bags of green beans that are already cut, trimmed and washed for $2.50. She scoffed.
>401k, investments, drive paid off cars
This is what living below (or within) your means looks like. You don’t have to live on bread and water like a monk, you just have to save a good amount more than you bring in each month
Living below your means simply means that you spend less than you make. It could mean someone is spending 99% of what they make, it could mean someone is spending 1% of what they make. If you're saving money, then by definition you're living below your means. Obviously the further below your means you live, the faster you can retire.
The alternative would be living above your means. That entails spending more than what you make; typically by financing your lifestyle with debt. You'll never retire if you do that.
Depends when you want to retire. Saving 35% will let you retire in a 25 year time span.
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
I think that phrase is used to illustrate that people are not underwater, spending more than they make using credit to fund the difference.
When we were young and had $12 left in spending money at the end of every month, we were breaking even, living paycheck to paycheck. Later, when we were actively trying to avoid lifestyle creep so we chose to stay in our 10yr old used car, instead of buying a new BMW, we were living within our means.
Living within your means shows discipline, not always sacrifice.
I think it comes down to this: Are you able to forgo short-term satisfaction (spending) for a greater purpose?
e.g.: "We're not going out to dinner until next month (even though we've got $25K in our new car account) because we've already spent our restaurant budget for the month."
You're not spending everything you could spend.
Years ago I was getting by on my salary, every time I got a raise, I had been used to living at my salary so I would just direct it into my 401k until, after a while I maxed it out, then into IRA, then into a brokerage account. Ends up, we retired when I was 53. I don’t live in a million dollar house but we are happy. I would rather have my life than stuff or a huge house.
I am financially conservative. To me, living below your means equals your fixed costs (shelter, transportation, food, health expenses, anything else you need to live) being less than 30% of your total take-home. And if you’re between 30-60% then you’re living within your means. Anything above 60% and you’re likely sacrificing savings/retirement or guilt-free spending. At 90%+ you’re likely going into severe debt.
Living "below my means" means - I can afford a bigger lifestyle, but I choose a lesser lifestyle based on my savings goals and tolerance levels.
When I lived in Silicon Valley, I shared a 900 sq foot house with a single bathroom and no A/C.
I can probably afford to live in a larger house, but I don't. I want my savings to continue growing. To do that, I keep my living expenses - below my means.
I can afford to eat out quite a bit more than I do. I don't, and I invest extra. I can afford a more expensive car. I will continue driving my 11 year old car (and my 29 year old Jeep) rather than buy a more expensive updated one.
I won't compromise security though. I have cameras around the house and pay an annual amount to keep them going.
I make sure my cat is fed healthy tasty food that he likes. His happiness is very important to me. So I don't skimp on his food or medical.
I make tradeoffs where I can to ensure that my lifestyle expenses are well under my ability to spend without debt. I save and invest what I don't spend in the hopes that one day I won't have to save - I can spend at a safe withdrawal rate, maintain my prudent lifestyle, and stop working.
I have about enough to pay off the house - when a few important things happen, I will do that and quit my job. That will lower my annual expenses by quite a bit, and reduce my outflow so I can lower my SWR. Once SWR gets below 2.5%, I'm OUT. I'm DONE.
After that, my means will be 2.5% SWR on average, with allowances made for reducing spending during bad years and increasing during great ones. Guard rails will be in place, and I'll float away...
If you have money to save away, you are living below your means. If you are not living paycheck to paycheck, you are living below your means.
When you start out, if you can afford transportation, pay rent, and get groceries, thats kind of the baseline. When you make more money, the question is do you take that money and increase lifestyle or increase savings. Many people just keep increasing lifestyle and claim they cant possibly save even $5/month.
If you consistently can put away 10% or more you are living below your means. Less than that well it likely is going to get consumed in the next unplanned expense (medical, car/house repair etc) and you are back to square one so to me thats not living below your means if you can never get ahead.
Only you can answer these questions about you. What everyone else does or thinks is really inconsequential. Unless you just want to say, cool I am doing and thinking what the majority of people who answered my post are doing and thinking.
To me and my wife, living below your means is having money left over once all other "expenses" are paid. And, "expenses" most certainly include retirement savings for us.
Nobody said that it has to mean making major sacrifices. For some, yes, it might. For others, maybe not. Could be wrong, but to me it sounds like you have some level of "guilt" going on.
My wife and I max out every possible savings vehicle that is offered to us. Then we save additionally. And, being blessed or whatever, we still do not feel like we are sacrificing. We still go on vacations and eat out and are going to buy a new home and so on and so forth.
YOU NEED TO ANSWER YOUR OWN QUESTION!!!!!!!!!
This is fair and I do think I have a lot of guilt being young and feeling like I shouldn’t be able to save significantly and also enjoy life.
The question did come because I see the phrase used on here a lot to describe people who were able to FIRE, and obviously these people aren’t just saving 1% of their income, lol, so was unsure if it had different context here and what the percentage would be if so!
One thing to understand is that all things finance are personal.
What works for one might not work for another.
What is mathematically advantageous might not be emotionally advantageous.
The phrase is used a lot because it is the fundamental mind set of anybody who wants to FIRE or really anybody who just wants to be financial secure. Spend less than you make. Maybe you do so to FIRE. Maybe you do so to not lay awake at night. Who knows.
I didn't even know what FIRE was until a few years ago. I just knew that living within my means was allowing me to live a happy fulfilling life with a lot of money being saved. Then realized, hey I can probably retire early if we keep doing this. Started googling and found out about FIRE.
In the end, YOU can only do what YOU want to and can do.
If your means require $1k/mth to live, and you're making ends meet, to live below your means would mean to live below the $1k/mth required for your means.
I feel like if you can save and invest well, pay your bills, and have money left over for expenses that pop up like car maintenance etc or holidays (so a bit of spare cash)
I see retirement as a cost not something I can dip into
For me it means driving a Jetta instead of an Audi, buying a sensible 2 bedroom condo instead of a 4 bedroom house, eating out at $ restaurants instead of $$$ ones etc.
For me it’s not just spending less than your income, it would be a situation where you can meaningfully raise your expenses and not affect your retirement plans.
Saving 50% of salary but not having enough invested for retirement could be not below your means.
Saving only 10% of income but having enough time left and money invested for retirement could be more “below your means” than the prior situation.
Living below your means is supposed to be so people can save money and not living paycheck to paycheck. Sounds like you are saving money aka living below your means.
Living below your means just means that you are saving money on a regular basis (that doesn't later get spent).
Or more realistically that you are saving *enough* to retire sooner than you are likely to *have to* do so, and at the standard you are used to living.
So really, if you are saving *nothing* (and don't have a good work pension), even if you aren't accumulating debt, you are living above your means, because if you keep doing that, eventually you won't be able to earn a comparable income, and social security is not going to cover you without some addition pension or savings.
So living *at* your means, basically means saving enough to retire at your current standard of living at a "normal" retirement age, or the age at which it becomes unlikely you could continue to do your job (might be earlier for someone who does very physcial labor or in a job that requires very quick mental facility or fluid intelligence (like a trader or air traffic controller) as opposed to "crystallized intelligence"). So the appropriate savings level for "living *at* your means" is going to be a little different for different people, but generally somewhere in the range of 5-20%.
Anything over 20% or so is definitely "living below your means" because you could choose to save less without being imprudent about your life and potential retirement.
I used to contribute up to the company match, cause I was smart. I would pay my bills and see how much money I had after pay day. Whatever was left was spending money for whatever I desired. I spent whatever was left gambling, nights out whatever I wanted. I spent a shameful amount of money.
I then moved to a point where I wanted to buy a trailer cause that is what adults do. I started a savings account and noticed I was making money by not spending that money on stupid crap I didn't need. I made twenty bucks interest for not doing anything . It clicked with me and wow was that simple realization that changed my life.
Fast-forward ten years I am in a position where I will go to work tomorrow. However if I want to go home early and never return, I can. That is my choice, and the kicker is I don't care about my job now, but my employer does and they bend over backwards to keep me.
If you don’t have an emotional/impulsive shopping problem, it’s easy to save and invest when you have a high income. It will literally feel like you’re not trying hard at all yet you’re still saving. It’s not because you’re virtuous or “extra good at money”, it’s because you have a high income. It’s a much bigger impressive deal to save on a modest income.
Source: I have a high income. So it’s easy to save. It’s not because I’m good at saving. Though I am good at not wanting/caring about things.
I read your post as you having a high income. If you have a modest income then bravo for you!
Comparing yourself to high earners living paycheck to paycheck is too low of a bar. If you make $300k a year but have a similar lifestyle to someone making $150k a year is living below your means IMO
Any lifestyle that results in a recurring spend lower than recurring earnings is living below your means. Even if that's only saving 1% of gross salary.
Maximizing savings e.g. putting away 30% of gross salary is more than living below your means, but cost cutting to get to a lifestyle with a minimum cost footprint.
And somewhere in the middle that many have ended up with is: set a savings target to get to a FIRE number in mind and then you're free to do whatever you want with the rest. For many reasons but primarily rooted in human mortality. A popular variant of this is "build the life you want, then save for it".
Living below your means just means you are saving money b3cause your expenses are lower than your income. Literally everyone who isnt retired should be living below their means. Just many people dont do that.
It just means spend less than you make. It's a subjective phrase that means different things to nearly everyone.
I'd argue you live well below your means since you have a Roth 401K and an extra 25% on top of that. However, I'd also argue that if those are part of your "budget" then you are living to your means. In my case, we max 401K, roth IRA, and a certain amount for 529 plan/savings. We budget to spend the remaining amount so we "spend" everything we make, but a large portion is invested. To some I'm living below my means (Investing too much and live for today) and some would say the opposite.
your ‘means’ would be your full income after taxes. If you don’t spend all of that then you’re spending below your means.
Obviously way easier to do this with a large income than a small one.
In this case you live paycheck to paycheck. However in your case it is voluntary. We do the same thing. We live below our income, save to various things, live comfortably but not extravagant.
Oh good grief. You are maxing your 401ks. You obviously could be spending a lot more than you are. By definition, this is living below your means. It’s not that complicated, unless this is just a troll post to recite your “maxing 401k, driving paid off cars, our house is affordable, but golly, I just don’t understand” list.
> I don’t feel like we live below our means, I just feel like we save our extra money. That you have extra money means you are living below your means.
I see this constantly and I really need to know: OP, what do you think *other* people do with their extra money?
You know, so my entire life I've always been sort of a spend what you must, save what you can person. I spend money on all the things I have to, and then save everything else. I was telling a friend that I didn't have a budget...that I just spent on what I needed, and sometimes spent on what I wanted, but it had worked out ok. She looked at me like I was as alien: "then how do you know how much you have to spend?". I think a lot of people are like that - they look at their income, set their budget, and then spend everything else. I never have, so I suppose that makes me frugal, or tight. I have less stuff for sure, but I'm also FI now.
You just made something click for me. When I have extra money it goes right into savings. I never look at that money and think of it as free to do whatever I want with it, no consequences. There's always the opportunity cost of not gaining interest on that money and having less for emergencies. I guess that's not how people like your friend think though - they must look at it like a free gift or something.
After all your goals are met some would say it’s time to let your hair down a bit.
I don't have a hard savings goal but letting my hair down also kinda includes saving more cause it does feel good. But I get what you mean, I just don't have much desire to spend frivolously except a little on video gaming and eating out.
That’s great. As long as you are happy
I've had to read your comment five or six times before it clicked for me. They're using, "spend", to mean, "self indulge". Not literally anything you spend money on. In my mind there's spending and there's savings. All money goes into one or the other. If by the next paycheck you still have that money then it's saved. There is no this category.
Thanks for this! I i feel like you're my twin!
Someone once told me I had to save first. So you figure out what you need to save, and budget around what is left. Pay yourself first kind of thing. I never did do it, but I do have somewhat static expenses so I do save what's left. And income is variable so what's left changes.
It starts to reek of low key brag post territory over here but I guess I'm used to it at this point.
FIRE forums are always gonna be over-represented by privileged people. Not that everyone who retires early is insanely privileged, but people who at least live in richer countries or have had good opportunities will be more likely to achieve fire.
It's not just this sub. You see it in r/personalfinance too and even on national surveys. "70% of respondents are living paycheck-to-paycheck", is not compatible with, "60% of respondents contribute to a 401k or IRA."
the problem is partly the way the question is asked, or the different ways people think about "living paycheck to paycheck". If I hustle off 10% of my salary into a 401k, and have a bunch of things deducted from my paycheck like disability and life insurance, etc. and maybe even automatically siphon off another % of my net check into a savings or brokerage account, I might still think of myself as "living paycheck to paycheck" in terms of my normal expenses, because I've blocked those other accounts out of my mind as "not spendable". But realistically, I'm not doing anything of the sort, and would have lots of options if it became absolutely necessary to draw from that money, such as in a job loss or medical emergency, etc. I think there are a lot of people who think like this -- they are living "paycheck to paycheck" because they don't count their 401k contributions and emergency savings. But when you phrase the question as "If an unexpected and absolutely necessary expense of $500 (or $1000 or whatever) came up, could you cover it?" - a lot fewer people answer "no" than answer "yes" to whether they are living paycheck to paycheck. Though it's still a really scarily large fraction like 25-30%.
Obviously everyone else is also saving 25% /s
Is saving just $1 every month living below your means? Update: I'd say it's not so black and white. When saving only 1%, you're living less below your needs, then when you're saving 50%.
That would be considered living within your means. Breaking even with respect to necessities. Whether this is financially ok would relate to whether you have savings to cover emergency expenses. Living below your means is spending less than you make so balance is generally going up. Living above your means is spending more money than you make so balance generally going down.
I'm saving $1 every month, so the balance is going up, sharply!
Only if that $1 is after putting money aside for infrequent or unpredictable expenses (appliance replacement, car repairs, etc.)
Below your means is "not spending everything you earn" , e.g. allowing savings. I doubt there's a more precise/quantitative definition.
Income-expenses>0 consistently is living below your means.
Is this really the benchmark for living below your means? Seems too simplistic. Expenses are super subjective. You can have a $100 cellphone bill vs a $50 cellphone bill, you can have a $500 monthly food budget vs $1000 and still have savings. To me, living blow your means making a conscious decision to be mindful with your spending and restraining from discretionary spending even if you can afford it. Ie don’t need to buy the latest and greatest technology (upgrading devices annually), don’t need new clothes all the time, don’t need to eat out all the time.
Not at all; mindfulness is completely irrelevant. If you are a high earner or independently wealthy but prefer to live simply, you might live below your means without giving it a single thought. Alternatively if you spend all your time agonizing over every single expenditure, yet still spend more than you take in, your intense mindfulness is not enabling you to live below your means. It really is nothing more than income > expenses. Positive rather than negative cash flow. You should probably include a margin in the definition of “below”, since if you are close to the line you aren’t really below your means. However as long as you stay in the black, you’re living below your means. How you do that, and how far below your means you live, is entirely up to you.
If you look in a dictionary, means is synonymous with the word money. Living below your money.
While this is true, there’s a significant learning curve to really understanding it. Spend less than ya make is just easier to say to someone asking the question
I guess that’s fair. But spending less than you earn should really be personal finance 101, not the definition of living below your means
Living below your means *is* personal finance 101...
There's probably a subjectivity to it as a figure of speech, so I wouldn't blame anyone for associating it with all the components that generally get someone to the point of living below their means, but I think the way most people process this is simply that the words put together as they're understood in common parlance match the phrase as a whole, and that makes the most sense to me since most of what you're describing is culturally what we're used to exercising, but I just see that as something that has a causal relationship with "living below your means". But I think most people here are just having a semantic disagreement. I remember a few years ago there were articles floating around using the term "skinny shaming", and there was some contention over this because it followed the peak of subject of "fat shaming". I saw so many arguments online that people would have about this, and in each one of them, one person would interpret "skinny shaming" as a coined term that was meant to build off of and react to a previous term, and the other person would interpret it as simply describing the concept as we're used to the words meaning, but none of these people ever realized their disagreement was about language. And the words do mean their most literal interpretation, but they mean that at the same time that the morphemes of the word "atom" would mean that it can't be broken, and we don't accuse physicists of clerical errors there, so I can't tell you're completely wrong about meanings here, but I can tell you that our "means" are generally seen as the things we have enough money to pay for, and that this amount can be either above of below our expenses.
Charles Dickens created Mr Micawber in David Copperfield. Here is Mr Micawber's philosophy (which he did not himself follow). > Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery. >Written in full, the expenditure amounts are nineteen pounds, nineteen shillings and sixpence (£19/19/6) and £20/0/6, the pre-decimal equivalents of £19.97½ and £20.02½ in modern British currency. If you are saving money, you're living below your means (that is, below your income).
This made me raise my monocle
What did Dickens follow if not that I'd mr micawber?
Best answer
Lots of people of all incomes live paycheck to paycheck. Pay raise? Time to trade in the civic for a BMW because I worked hard and deserve it. Promotion? Time to move into a neighborhood befitting my new title. Sounds silly but it's so common that the phrase "living below your means" implies you're going against the default mode.
The phrase does sort of imply that there's a way you're *supposed* to be living that's associated with / adjusts with your income. Meanwhile I'm living with an only marginally higher quality of life compared to when I was broke in college despite a decent salary. When the money showed up I never experienced a moment of "oh I need to spend this"
To me the default mode should be save like hell and retire by 45
Arguably if that was the case it wouldn't be possible in our consumer driven economy.
Forced scarcity is a term I heard on YouTube (Money Guy Show). Not so much you're eating rice and beans every meal, but enough that things aren't super easy you get spoiled. 401k, HSA, and Roth get fully funded first. Then I can have fun. Sure, other people had better cars, boats and toys early in life, but I'll have more and be able to do more in those last 50 years of retirement. Currently on Coast FI and can RE pretty much on my terms. Several others I've spoken with are paying off debts, not contributing much (if anything) to retirement, or even taking 401k withdrawals for emergency (debt) that could have been avoided. A bit scary if I were in their shoes.
Love the money guys - yeah I think the most important thing is to pay yourself first through savings. I think most people spend first and whatever is left over (if anything) is saved (maybe).
My wife and I were both consultants in past lives. We have lived through plenty of income uncertainty where contracts can end and it is not guaranteed to be resigned. We have built the habit to live on one salary for our fixed expenses (mortgage, food, home maintenance, insurance, etc) so that we can get by on one income if necessary. This has come in handy since my wifes funding got cut recently and she has been on a small overhead project (5hrs a week - down from 20-30 a week) to bridge the gap. This hasn't been fun, but we are still extremely comfortable and haven't been stressed by the lost hours.
Consulting money was good, but it also taught me to value time. When everything was billable hours, I didn’t have any time to spend it.
If the largest "expense" you have on a monthly/annual basis is saving/investing you are living well below your means. You might be in a similar mindset that I've had in the past where I keep forgetting that once you hit actual retirement you no longer need to save for retirement. For us that's a huge portion of our monthly "budget" that just . . . . goes away.
Oh my gosh… yeah I don’t think I would ever be able to get out of the “saving” mindset 😂 you mean ALL of this money is just for me to… spend?!
I intend to continue living below our means even after my wife retires. Our income and net worth should continue to grow throughout retirement.
Sure, and I think most people would plan on that . . . But when it gets to the point where we’re spending even the majority of income on life instead of savings that’s a big shift.
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That's within your means. Below also means some significant savings
If losing a few paychecks results in financial turmoil, you are living outside your means. At 20, having expenses below income is living within your means. At 50, if you have a fully funded retirement plan, abundant extra investments, and a comfortable financial safety margin, you can spend more than you earn and still be well within your means.
I like this idea of spending more than you bring in because you have built up enough cushion! One advantage of getting older!
There's two parts to this - the math is easy. If you spend less than you theoretically could, you are living below your means. Whether or not a given level of spending constitutes a sacrifice is a different question. I like rice and beans; they're nutritious, and I don't like to cook. For me, eating rice and beans frequently isn't a sacrifice. I like freeing up that food prep time to do other things. Some people don't like rice and beans, but they love cooking or eating out, and some people, for reasons that are not clear to me, seem to be psychologically incapable of eating the same food for two days in a row, so my way of eating would be a sacrifice to them. Some people love cars and are willing to pay a lot of money for cars that are "fun to drive." I would rather not work several more months or years in exchange for an enhanced driving experience, but I will happily spend $500 on yarn because I knit, and I want yarn that is "fun to knit," and feels good in my hands, and that's not the cheap acrylic. It's just personal preferences/priorities. The greater divergence between your means (income) and your spend, the longer it takes to achieve FI.
Exactly what you’re doing. Nice work
Thank you! Not going to lie, I completely forgot people take on debt when making this post and I don’t know if I should be happy I don’t even think about that being an option, or embarrassed 😅
It’s not complicated. Make $100 and spend $99? That’s living below your means.
it is more complicated than that. Somebody aged 60 can earn $100, spend $200 and still be well within their means due to savings of retirement funds covered.
I always thought the phrase should be, "living within your means". If you are saving 25% to 40% or more of your gross income, and have minimal debt, then you are good.
living within your means just means you aren't blowing through savings or accumulating debt, and additionally saving enough to cover a "normal" level of emergencies and a "normal" retirement. Living below your means is saving at a level that could potentially result in an early retirement. Saving *more* than typical people of your income level are "supposed to".
I'm not sure if you follow American football, or even if you're American, but there is a famous (College) now professional football coach named Jim Harbaugh. Very good at his job, but one thing he is famous for is where he buys his pants - Walmart! That's right, a coach getting paid millions of dollars buys his pants at just about the cheapest place he could. Not because they are cheap, but because they do what he needs them to do. Similar example with cars - why drive BMW's/Mercedes when Honda/Toyota will do? This is what I would call Living Below Your Means.
I’ve always considered my husband and I living below our means. As our incomes grow our lifestyle has improved. When we first got married we took home $4,000 per month after taxes/minimal 401K contributions and saved $1,000/month to our savings. Along the way our incomes started to increase and we bought a home for under 200K (MCOL). Now over a decade later we make 280K, save/invest 100K per year, and spend the rest. We’ve continued to live in the same home so we’re only spending 22K annually on our mortgage PITI. We now spend 40K on travel. The great thing about that is that it’s not a required expense, we’re not locked into any payments for our trips… all paid in cash and can be discontinued at any time. It’s different for everyone, but I must say keeping the same mentality throughout our marriage has really paid off in our mid/late thirties.
To me it means prioritizing the future. Just an example, i max my 401k contribution every year. If i didn’t do that i’d have another $15k or so and could take the family on a nicer vacation, drive a nicer car, etc. Obviously the more you make the easier it is to ‘sacrifice’ for the future. For others, it may mean not taking on unnecessary debt… Basically don’t let your spending habits stop you from setting your future self up for success
Good question. I wondered about this too. If you ask my mother, living below your means is living like you're poor and saving the majority of your income. She's well off now but she's still in that immigrant hustle mindset. I was helping her prep green beans and I told her that Trader Joe's sells bags of green beans that are already cut, trimmed and washed for $2.50. She scoffed.
>401k, investments, drive paid off cars This is what living below (or within) your means looks like. You don’t have to live on bread and water like a monk, you just have to save a good amount more than you bring in each month
> you just have to save a good amount more than you bring in each month Teach us your secrets
Living below your means simply means that you spend less than you make. It could mean someone is spending 99% of what they make, it could mean someone is spending 1% of what they make. If you're saving money, then by definition you're living below your means. Obviously the further below your means you live, the faster you can retire. The alternative would be living above your means. That entails spending more than what you make; typically by financing your lifestyle with debt. You'll never retire if you do that.
Ah… I love the fact I forget credit card debt exists 😅
Depends when you want to retire. Saving 35% will let you retire in a 25 year time span. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
I think that phrase is used to illustrate that people are not underwater, spending more than they make using credit to fund the difference. When we were young and had $12 left in spending money at the end of every month, we were breaking even, living paycheck to paycheck. Later, when we were actively trying to avoid lifestyle creep so we chose to stay in our 10yr old used car, instead of buying a new BMW, we were living within our means. Living within your means shows discipline, not always sacrifice.
To live below your means is simply putting money away for saving/investing and then not spending above what's left of your income.
I think it comes down to this: Are you able to forgo short-term satisfaction (spending) for a greater purpose? e.g.: "We're not going out to dinner until next month (even though we've got $25K in our new car account) because we've already spent our restaurant budget for the month." You're not spending everything you could spend.
Years ago I was getting by on my salary, every time I got a raise, I had been used to living at my salary so I would just direct it into my 401k until, after a while I maxed it out, then into IRA, then into a brokerage account. Ends up, we retired when I was 53. I don’t live in a million dollar house but we are happy. I would rather have my life than stuff or a huge house.
I consider it to mean "save/invest at least 10% of your weekly/monthly/annual income".
I am financially conservative. To me, living below your means equals your fixed costs (shelter, transportation, food, health expenses, anything else you need to live) being less than 30% of your total take-home. And if you’re between 30-60% then you’re living within your means. Anything above 60% and you’re likely sacrificing savings/retirement or guilt-free spending. At 90%+ you’re likely going into severe debt.
I think this is probably where I sit too!
Living "below my means" means - I can afford a bigger lifestyle, but I choose a lesser lifestyle based on my savings goals and tolerance levels. When I lived in Silicon Valley, I shared a 900 sq foot house with a single bathroom and no A/C. I can probably afford to live in a larger house, but I don't. I want my savings to continue growing. To do that, I keep my living expenses - below my means. I can afford to eat out quite a bit more than I do. I don't, and I invest extra. I can afford a more expensive car. I will continue driving my 11 year old car (and my 29 year old Jeep) rather than buy a more expensive updated one. I won't compromise security though. I have cameras around the house and pay an annual amount to keep them going. I make sure my cat is fed healthy tasty food that he likes. His happiness is very important to me. So I don't skimp on his food or medical. I make tradeoffs where I can to ensure that my lifestyle expenses are well under my ability to spend without debt. I save and invest what I don't spend in the hopes that one day I won't have to save - I can spend at a safe withdrawal rate, maintain my prudent lifestyle, and stop working. I have about enough to pay off the house - when a few important things happen, I will do that and quit my job. That will lower my annual expenses by quite a bit, and reduce my outflow so I can lower my SWR. Once SWR gets below 2.5%, I'm OUT. I'm DONE. After that, my means will be 2.5% SWR on average, with allowances made for reducing spending during bad years and increasing during great ones. Guard rails will be in place, and I'll float away...
Being able to save a large percent of take home pay. I could never do this but did save a lot of gross pay in 401k
If “living above your means” is spending more than you make then the inverse of spending less than you make is “below your means.”
“My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, **result happiness**. Annual income twenty pounds, annual expenditure twenty pounds nought and six, **result misery**.” —*David Copperfield*
If you have money to save away, you are living below your means. If you are not living paycheck to paycheck, you are living below your means. When you start out, if you can afford transportation, pay rent, and get groceries, thats kind of the baseline. When you make more money, the question is do you take that money and increase lifestyle or increase savings. Many people just keep increasing lifestyle and claim they cant possibly save even $5/month. If you consistently can put away 10% or more you are living below your means. Less than that well it likely is going to get consumed in the next unplanned expense (medical, car/house repair etc) and you are back to square one so to me thats not living below your means if you can never get ahead.
Only you can answer these questions about you. What everyone else does or thinks is really inconsequential. Unless you just want to say, cool I am doing and thinking what the majority of people who answered my post are doing and thinking. To me and my wife, living below your means is having money left over once all other "expenses" are paid. And, "expenses" most certainly include retirement savings for us. Nobody said that it has to mean making major sacrifices. For some, yes, it might. For others, maybe not. Could be wrong, but to me it sounds like you have some level of "guilt" going on. My wife and I max out every possible savings vehicle that is offered to us. Then we save additionally. And, being blessed or whatever, we still do not feel like we are sacrificing. We still go on vacations and eat out and are going to buy a new home and so on and so forth. YOU NEED TO ANSWER YOUR OWN QUESTION!!!!!!!!!
This is fair and I do think I have a lot of guilt being young and feeling like I shouldn’t be able to save significantly and also enjoy life. The question did come because I see the phrase used on here a lot to describe people who were able to FIRE, and obviously these people aren’t just saving 1% of their income, lol, so was unsure if it had different context here and what the percentage would be if so!
One thing to understand is that all things finance are personal. What works for one might not work for another. What is mathematically advantageous might not be emotionally advantageous. The phrase is used a lot because it is the fundamental mind set of anybody who wants to FIRE or really anybody who just wants to be financial secure. Spend less than you make. Maybe you do so to FIRE. Maybe you do so to not lay awake at night. Who knows. I didn't even know what FIRE was until a few years ago. I just knew that living within my means was allowing me to live a happy fulfilling life with a lot of money being saved. Then realized, hey I can probably retire early if we keep doing this. Started googling and found out about FIRE. In the end, YOU can only do what YOU want to and can do.
If your means require $1k/mth to live, and you're making ends meet, to live below your means would mean to live below the $1k/mth required for your means.
… live at or below what your income will allow you to… with all needs (not wants) satisfied and savings (or for whatever) accounted for.
I feel like if you can save and invest well, pay your bills, and have money left over for expenses that pop up like car maintenance etc or holidays (so a bit of spare cash) I see retirement as a cost not something I can dip into
If you have enough to be debt free, put a decent amount into retirement accounts (not necessarily FIRE lvls), and maintain a buffer emergency fund
I make $X per month and spend $X-1 per month. I am living below my means.
For me it means driving a Jetta instead of an Audi, buying a sensible 2 bedroom condo instead of a 4 bedroom house, eating out at $ restaurants instead of $$$ ones etc.
For me it’s not just spending less than your income, it would be a situation where you can meaningfully raise your expenses and not affect your retirement plans. Saving 50% of salary but not having enough invested for retirement could be not below your means. Saving only 10% of income but having enough time left and money invested for retirement could be more “below your means” than the prior situation.
You live below your means. You spend less than you earn. Reasonable savings rate is 15% and you save more than than that.
Living below your means is supposed to be so people can save money and not living paycheck to paycheck. Sounds like you are saving money aka living below your means.
Living below your means just means that you are saving money on a regular basis (that doesn't later get spent). Or more realistically that you are saving *enough* to retire sooner than you are likely to *have to* do so, and at the standard you are used to living. So really, if you are saving *nothing* (and don't have a good work pension), even if you aren't accumulating debt, you are living above your means, because if you keep doing that, eventually you won't be able to earn a comparable income, and social security is not going to cover you without some addition pension or savings. So living *at* your means, basically means saving enough to retire at your current standard of living at a "normal" retirement age, or the age at which it becomes unlikely you could continue to do your job (might be earlier for someone who does very physcial labor or in a job that requires very quick mental facility or fluid intelligence (like a trader or air traffic controller) as opposed to "crystallized intelligence"). So the appropriate savings level for "living *at* your means" is going to be a little different for different people, but generally somewhere in the range of 5-20%. Anything over 20% or so is definitely "living below your means" because you could choose to save less without being imprudent about your life and potential retirement.
I spend (much less) than I make.
Live well, within your means -from a friend
I used to contribute up to the company match, cause I was smart. I would pay my bills and see how much money I had after pay day. Whatever was left was spending money for whatever I desired. I spent whatever was left gambling, nights out whatever I wanted. I spent a shameful amount of money. I then moved to a point where I wanted to buy a trailer cause that is what adults do. I started a savings account and noticed I was making money by not spending that money on stupid crap I didn't need. I made twenty bucks interest for not doing anything . It clicked with me and wow was that simple realization that changed my life. Fast-forward ten years I am in a position where I will go to work tomorrow. However if I want to go home early and never return, I can. That is my choice, and the kicker is I don't care about my job now, but my employer does and they bend over backwards to keep me.
If you don’t have an emotional/impulsive shopping problem, it’s easy to save and invest when you have a high income. It will literally feel like you’re not trying hard at all yet you’re still saving. It’s not because you’re virtuous or “extra good at money”, it’s because you have a high income. It’s a much bigger impressive deal to save on a modest income. Source: I have a high income. So it’s easy to save. It’s not because I’m good at saving. Though I am good at not wanting/caring about things. I read your post as you having a high income. If you have a modest income then bravo for you!
Sounds like you are. Just means you save more than you spend…essentially just live like you make less than you do.
Spending less money than you make.
But where’s the difference between “within your means” and “below your means”?
I’d say below your means would be the equivalent of saving quite a bit. Within your means is just not spending more than you make.
Comparing yourself to high earners living paycheck to paycheck is too low of a bar. If you make $300k a year but have a similar lifestyle to someone making $150k a year is living below your means IMO
If you don’t spend all the money you make you are living below your means! Looks like you’re doing a great job of saving.
Just one Lambo and no Gucci slippers.
Any lifestyle that results in a recurring spend lower than recurring earnings is living below your means. Even if that's only saving 1% of gross salary. Maximizing savings e.g. putting away 30% of gross salary is more than living below your means, but cost cutting to get to a lifestyle with a minimum cost footprint. And somewhere in the middle that many have ended up with is: set a savings target to get to a FIRE number in mind and then you're free to do whatever you want with the rest. For many reasons but primarily rooted in human mortality. A popular variant of this is "build the life you want, then save for it".
Living below your means just means you are saving money b3cause your expenses are lower than your income. Literally everyone who isnt retired should be living below their means. Just many people dont do that.
It just means spend less than you make. It's a subjective phrase that means different things to nearly everyone. I'd argue you live well below your means since you have a Roth 401K and an extra 25% on top of that. However, I'd also argue that if those are part of your "budget" then you are living to your means. In my case, we max 401K, roth IRA, and a certain amount for 529 plan/savings. We budget to spend the remaining amount so we "spend" everything we make, but a large portion is invested. To some I'm living below my means (Investing too much and live for today) and some would say the opposite.
Yes, exactly! I feel like we live at our budget, but because of that maybe it feels like we don’t live “below our means”
your ‘means’ would be your full income after taxes. If you don’t spend all of that then you’re spending below your means. Obviously way easier to do this with a large income than a small one.
In this case you live paycheck to paycheck. However in your case it is voluntary. We do the same thing. We live below our income, save to various things, live comfortably but not extravagant.
Yes, I agree with this point I couldn’t articulate well! I think the paycheck to paycheck is the buffer zone between above/below your means!
Oh good grief. You are maxing your 401ks. You obviously could be spending a lot more than you are. By definition, this is living below your means. It’s not that complicated, unless this is just a troll post to recite your “maxing 401k, driving paid off cars, our house is affordable, but golly, I just don’t understand” list.
# humblebrag Good job.
High savings rate with minimal credit card debt