In today’s world, it is easy to get wrapped up in “stuff.” I definitely fell victim to this for a chunk of my life. The problem with this is, if you want to be financially independent (aka wealthy), you have to do more than just living within your means.
I am a budget freak and I thought my husband and I were doing well by living within our means, but after some careful reflection, I realized we weren’t necessarily 100% committed to that lifestyle. This was scary and surprising because we were super motivated to be financially independent.
Now if we know your income is your biggest opportunity to become wealthy, then the goal should really be to free up as much of your income as possible to build wealth. This would mean having no debt payments or obscene mortgage eating up your income.
The other player in this game is your daily, weekly and monthly expenses. These are things you choose to spend your money on beyond your normal bills. These are the choices you are making on a daily basis that will dictate if you become wealthy or not.
So much pressure, I know! But, these daily choices become the dictators of your financial life. After taking a hard look at myself, I realized there are three ways of living your life, but only one of those ways is going to make you wealthy.
1. Living within your means.
This method of living is hammered into us from a very young age, but what does it really mean?
In the simplest form, living within your means is just saying you spend less than or equal to what you make every month. Meaning you don’t go over budget. What you are spending is not exceeding what you are making.
For some, this may be enough for a stress-free and debt-free life. But, living within your means isn’t going to be enough to become wealthy. With this method of living you will pay cash for everything, but won’t save or pay off debt because you are just “breaking even.”
When you just live within your means, you are not building, you are just maintaining. You don’t go into debt, but you also don’t invest in your future. This is kind of like treading water; you aren’t moving forward.
Will living within your means make you super wealthy? No. This is just a break-even.
2. Living beyond your means.
You probably already know, this is definitely not the way to become wealthy.
Living beyond your means has all kinds of negative connotations around it (and rightfully so!). This means you are spending more than you can afford. What is going out every month is exceeding what is coming in every month. This is bad.
Essentially, you are spending money you don’t have. This kind of living will lead to debt accumulation of epic proportion if you aren’t careful. People living this way are addicted to instant gratification and can’t tell themselves, “no.”
They are only living for today and are stealing time and money from their future.
Living beyond your means is a surefire way to set yourself up for financial ruin in the short-term and long-term.
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This is a no-brainer, but will living beyond your means make you wealthy? No way!
So what is it then? What’s the key to becoming wealthy?
3. Living below your means.
This sounds so basic, right?….and probably super boring too. Well, guess what? This is it! This is the amazing secret to becoming wealthy. It sounds super simple, but it is really really hard to do this.
Living below your means is exactly what it sounds like. You spend less than what you make. You have extra money and you don’t spend it (weird concept, huh?). You save and you strive to be frugal.
You may be able to afford a $25,000 car, but instead, you buy a $10,000 car and put the rest in investments. You tell yourself, “no,” and delay instant gratification.
The media paints wealthy people as those with big houses, nice clothes, and fancy cars. The truth is, those people are up to their eyeballs in debt. The truly wealthy people are the quiet, hard-working plumbers, electricians, teachers, etc. who live a modest lifestyle and spend less than what they make.
They are doing steady investing over time and not putting themselves into debt trying to keep up appearances. They are living below their means over and over and over. They are choosing this way of life every single day.
So if this is so simple, why do we fail at this?
Short answer, because we are human and can justify anything if we want it badly enough. Here are a few examples from my home from just this summer.
We had three “projects” we wanted to accomplish this summer that would cost some money.
- My husband was complaining that our grill (which we got free) needed a new grate because it was old and worn out and wasn’t working well. I translated this to mean my husband just wanted a bigger and better grill. ($500-$600)
- We moved to a new home last year and wanted to put up a fence in the yard for our dogs. It was really important to us they have a better quality of life and a fence would provide this. (Quote from a professional fence company $7,500)
- Our home has a raised garden all ready for some plants. I wanted to do vegetables and try my hand at canning. ($100-$200 for all supplies, plants, canning stuff, etc.)
We were faced with a bunch of choices about what we should do and if we should focus on taking care of these things. But, any money we chose to use on these projects would take away from our debt payments.
So what did we do? First, we had a long talk about our priorities and goals. We all get tired of paying off debt and just want to have some fun sometimes. Spending is super fun. But, once we took a breath and talked about if these things were worth it, we were able to make some tough decisions.
- My husband decided he did not, in fact, actually need a new grill. He just wanted one. We are still using our free grill and it works just fine. This was a win for our financial future. We lived below our means on this one.
- We decided we needed a fence for our dogs, but got creative about how to build one. With some farming know-how in the family, we decided to build a fence like you would for cattle (and then dress it up a bit). This saved us costs on labor and supplies and it got the job done. I actually really love how it turned out, and it only cost $1,000. This was living within our means, so it didn’t really move us forward financially, but in this case, we decided the improvement in our quality of life, as well as our dogs’, was worth it.
- After looking into the costs for the soil, compost, seed packets and canning supplies (as well as remembering the maintenance I would have to do), I decided to completely forego having a garden. Would I love fresh veggies? Yes, but buying canned vegetables was pennies on the dollar for what we needed them for. Again, we lived below our means.
We are not perfect as you can see. Every household will be different. Even though we saved ~$14,000 based on our decisions, we still spent $1,000 that could have gone toward debt. It’s all in how you look at it that will determine if you can live with your decisions or not. As I said, we humans are able to justify anything we want, but always ask yourself if you are living below your means.
Even when you are hyperfocused on your finances, there are still going to be decisions you need to make. How much should you spend on X? Is this really worth it? Will you be putting yourselves behind by making this decision?
No one is perfect (myself included), but you should strive to make decisions that will propel you toward wealth, not just what will make you happy right now.
Living below your means is the secret to wealth. Yes, you need to budget and plan to know what your money is doing, but if you do that, you still have to make choices. My husband and I could have easily cash-flowed all those projects ($15,000). But, that would have been just living within our means. Doing that would not have built wealth because it was taking money away from debt payoff and investing in our future.
Call it being frugal, cheap, resourceful or whatever you want. At the end of the day, if you want to become wealthy, you need to spend less than what you make. Every choice you make should be a reflection of this principle.
No one said it would be easy, but it will be worth it!
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