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As Long As You Can Make The Payments – You’re Fine

by The Happy Rock on January 8, 2009

“I can pay all my bills each month, I am doing well.”

In a world of leased BMWs, credit cards galore, no interest credit offers, and high standards of living, what does it really mean to ‘live within your means’?

We all might have our own definition, but I wanted lay out what I think it means and see what others think.

bmw-is-the-only-car-to-haveThe prevailing definition seems to be living on less than you make.  Living within your means is much more than just being able to meet your bills each month.   What type of bills you have matters immensely.    If you have a huge car loan for a $30,000 new mini-van and you make $50,000 a year, I am arguing that you are living outside of your means.

Living within your means = Only purchasing items that you can buy with cash

This includes cars, vacations, mortgages…everything.  The only means you have is the income you take home each paycheck.  So if you take on any debt, it means you are living outside what you can actually afford.  If you have debt it means you lived outside of your means at some point and are still paying for it.   Payments for cars and TVs are debt and proof that you couldn’t afford the item.  I know we like to stick our head in the sand to forget about debt and only see payments, but debt it is real and it is an extremely heavy burden.  It might be hard to hear, but it is the truth.

Using that definition I am still living outside of my means because I still have a mortgage.   If we scraped every spare penny at applied it to our mortgage, we might be able to pay it off in three years.  That sounds to me like I bought something I couldn’t afford.

I suspect most of us are ok with getting a mortgage, which is fine, but the whole point is that we need to reclaim our financial language to represent real financial sense not the distorted consumerist mess that we espouse today.

What do you think?

{ 16 comments… read them below or add one }

Fabulously Broke January 8, 2009 at 2:54 pm

Aside from a mortgage I don’t want to ever be in debt or have debt again.

Been there, done that. You also need a financial cushion aside from being debt free to be really secure.

Good post. Am linking to this.

Fabulously Broke in the City
Just a girl trying to find a balance between being a Shopaholic and a Saver…

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laura January 8, 2009 at 3:19 pm

Exactly! We’ve been overwhelmingly in debt twice, both times it became overwhelming because of a job loss or cut in hours. Shame on us! We are climbing out again and will NOT let it happen again. No matter how small the debt amount, you can only control what you spend and not the economy. Great post!

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Chris January 8, 2009 at 9:29 pm

The only debt I have is a very affordable mortgage which is being rapidly paid off, should be cleared in 3 years. Your debt situation still has to be balanced by your job and family needs. I have a very secure Government job, so have little fear of loss of income, my wife is in the same position.

Being debt free is about increasing your quality of life. We made the choice to slow our debt repayments so that we could have some quality life experiences such as travelling with our 3 children, now they are in their late teens it is time to get rid of any remaining debt.

It is sibering to realise any purchase you make that slows down the repayment of an outstanding debt, means you are paying interest on everything until you are debt free.

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MoneyTheory January 9, 2009 at 5:48 am

Your post makes great sense, and it is so refreshing to hear this being discussed more and more! Our society has become so consumer-oriented and saturated with commercialism, that so many people think they have to have the BMW and a 4,000 square-foot house to keep up with their neighbors, only to finance it all and live way beyond their means. And nowadays, this seems like such a “normal” thing for people to do. But there is a big push from many who are reverting back to the more frugal lifestyles of days past. Nice to see a great article about it!

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money-attraction January 9, 2009 at 5:55 am

Your definition of “living within your means” is creative and informative. I almost agree with you. but I don’t take credit as totally debt. once used well, they can also be a good tool to improve living.

thank you for this good information. I really like your definition.^_^

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Surviving A Recession January 9, 2009 at 10:25 am

you are absolutely right many people do live way outside of their means. And maybe some of that has to do with their perception of what it means to live outside of their means. But, in my opinion it is ok to borrow for large ticket items like homes and cars. But, it has to be done responsibly. For instance, my wife and i purchased our first home last year. With our income we could have easily purchased a home 2 or 3 times more expensive than we did. But, we decided that we would limit ourselves to a home that only one of us could afford at the time. We did that just in case one of us lost our job. Our monthly monthly mortgage payment is the same as a lease on an apartment would have been. To me this is living within your means; even though loans are involved.

If treated responsibly debt has a part in your personal finances. Unfortunately very few people take on debt responsibly and use it for what they want instead of what they need.

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Emma of Baby-Log.com January 9, 2009 at 10:41 pm

I think that when considering a mortgage people should keep the worst case scenario in mind – what if the family will have to live on one income, will it cover the bills and the mortgage? There should always be plan B. And then, within boundaries of reason and common sense, it’s ok to borrow. You can live sometimes outside your means but you need to realize and remember that you;re living outside your means.

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Mike King January 10, 2009 at 7:58 pm

Well, if people have some kind of savings and emergency funds available so that they can survive with a job loss for some time, then it’s obviously up to each person how they spend their cash. I personally don’t care for dept much but if I can make more money by having the dept than not, then it can be a smart investment as long as you have the ability and self control to limit yourself from funds you have on credit.

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The Happy Rock January 13, 2009 at 7:42 am

@Fabulously Broke – Great to hear, you and I know you wil be better for it.

@Laura – Exactly control what you can have control off well and leave the rest.

@Chris – Destroying debt really does change your perspective on what money is worth.

@Money Theory – I agree, in tough times principles rather than fads gain strength.

@money-attraction – I think the definition is spot on, but we can definitely explore whether there are times when it is worth living outside your means.

@Surviving – I am not sure that borrow money is living within your means, I suspect if you had the cash stashed away to pay it off and you still wanted to borrow you could make a case. With that said there is room for discussion when borrowing might make some fiscal sense. We did the same for our condo. Our principle + taxes + interest + association fees is exactly the same as an apartment.

@Emma – I think that is some good advice. Thinking about lean or rough times helps to clarify whether it is something you can afford or something that will eventually crush you.

@Mike King – I suspect you are right. If people had emergency funds and control of spending we would need to have these conversations a lot less.

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fern January 13, 2009 at 5:50 pm

My rule of thumb: Pay cash for everything except:
1. a house
2. student loans

Others might argue that you need to finance your car, but i disagree. I pay cash, although i drive nothing fancieer than a honda.

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Ernie Small January 15, 2009 at 3:23 am

“if you have debt it means you lived outside of your means at some point and are still paying for it.”

sad, but so true. in my life it has always been the things that i am “irrational” or “romantic” about that have caused me to rack up the debt: maintaining my tumultuous long distance relationship with plane tickets i can’t afford or fixing that piece of broken musical equipment i feel i need to keep following my muse….
with everything else, i only spend money if i actually have money.

so, in other words, as modest mouse would say, “heart cooks brain”….

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Mark January 16, 2009 at 2:12 am

Good point. Just because you can buy something doesn’t mean that you can afford it.

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Krunk January 18, 2009 at 2:23 am

Although I don’t disagree with your definition, I find it to be restrictive.

To me, Living within your means refers to the fact that my monthly income is greater than my monthly expenses. By how much is really based on the individual. Expenses include everything, paying off loans, food, shelter, clothing, entertainment, utilities, etc. Anything you have to pay is considered an expense. If you sum all those up and it’s still below what you’re making every month, you’re living within your means.

Just like with mortgage and student loans, you have an expectation of what you’ll be making and what your monthly income is. The moment that your income drops a significant chunk, you monthly income will probably be less than your monthly expenses, which is never a good thing.

As many of you agree, mortgage isn’t a bad thing, but the moment you can’t pay the monthly mortgage, you are living outside your means and one of the options is to sell the house and find something cheaper. But before then, you are living well within your means.

It’s the same with a car loan, or any loan you make to buy something. If you can expect to have a net increase of money at the end of the month, I can’t see how you would argue that’s living outside your means.

However, living withing your means doesn’t mean you aren’t living stupidly within your means. One of them is borrowing from your credit card or high interest rate loans. While still living within your means, you’re just wasting money at that point.

Sure you can save up money to buy stuff, but unfortunately humans can’t live forever. How long do you have to save up to go to the college you desire, especially if you plan on going to grad, law, or medical school? How long do you have to save up before you can buy your first house?

Some of you may think that my definition would allow borrowing at 0% interest for the awhile and then pay back later. I would just like to assert the fact that my definition wouldn’t allow that unless when the interest starts kicking in, you’re still able to maintain a monthly higher income than expenses.

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DebtFreeDave January 18, 2009 at 10:03 am

I couldn’t agree more with your post. The thing about debt is that it allows you to live a higher standard of living than you would normally be able to live, in essence you are getting a raise. That is, until you have to start paying it off. At that point, you then are working for your creditors and being forced to live a lower standard of living than what your wages would provide if you were debt free.

If your debt free today, you can probably say, “Recession, there’s a recession going on?”

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Pete at Nissan GTR Canada January 22, 2009 at 12:42 am

I agree fully with the article, yet I pay a ridiculous lease on a brand new car that I can barely afford.. AND I am already eyeballing the newer model. It’s almost addicting, and the banks only encourage what is viewed by most as irresponsible spending.

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Scott March 5, 2012 at 1:14 pm

I couldn’t agree more with this post. I have cut back as I have gotten older and it hasn’t hurt my life. In fact, I have less to worry about. In the past, I thought that renting was a bad thing….that I must own a house and all that came with it. I now enjoy a great lifestyle in a nice apartment community and live around very nice people. My monthly outlay is significantly less than what it would otherwise be, allowing me to save more and do other things I enjoy doing.
Life isn’t about the size house you live in, the prestigious location, etc. It’s about relationships, plain and simple. And, it’s very, very short.

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