“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.
The 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?