This is a term that gets used way too often and has really lost its value of being a mantra on how to live your life from a financial perspective. Some people think if they don’t spend 100% of what they make, they must be living beneath their means. Although that may be correct from a mathematical perspective, it isn’t the spirit behind what living beneath your means truly represents.
Have you ever seen a family who has a BMW in front of a 5,000 square-foot home in a gated community and think to yourself how great it must feel to be that wealthy? Of course, you have. In fact, we all have. But if you could take a closer look, you might be surprised as to what’s behind the pretty façade. In most cases, it’s thousands of dollars spent each month on car payments, mortgage payments, property taxes, insurance, utilities, etc. This doesn’t even address the elaborate vacations, expensive toys, and all the other expenses that go along with a lifestyle of luxury. And even if this well-off family in our example can afford these expenses, how much do they have left over each month to save for the future? It might surprise you that this family might have less than $50,000 in net worth, which makes them one misfortunate circumstance away, like losing a job, from financial ruin.
Let’s take a look at a second family. This family drives a 10-year-old sedan and lives in 30-year-old neighborhood with a 2,000-square-foot home. Nothing wrong with folks like this as they are hardworking people just trying to get by. In fact, you might even say this sounds like a typical American family. What if I told you this family lives this modest lifestyle so they can enjoy the important things in life? They may even be debt free and have over $1 million dollars saved for their retirement. Would you be shocked?
The point I’m trying to make is that appearances are deceiving. To live beneath your means requires a strong self-awareness of who you are and what you’re capable of doing. You don’t measure your self-worth by fancy possessions so you can impress others. Rather, you understand that knowing your priorities in life allows you to spend money on things that truly matter.
It’s important that you understand that “living beneath your means” doesn’t have to equate to living in a shack, eating hot dogs and beans every night, never taking a vacation, and getting all your clothes at Goodwill. It means keeping your spending in check, staying true to your budget, achieving your savings target, and avoiding the temptation to buy things in order to impress others (i.e., keeping up with the Joneses).