The Meaning of ‘Living Within Your Means’

The Meaning of ‘Living Within Your Means’

Means is income and the area in which you live, not your background, career or peer group

The common assumption is that the more money you make the easier your life will be and the less you’ll have to worry about finances. This couldn’t be further from the truth. It’s not about how MUCH money you possess or earn, living within your means is how you utilize money; save it, spend it, view it and what goals you have surrounding it. Whether you make $1,200 a month or $10,000 a month, you need to be realistic with the cost of living in your area and your priorities.

We have friends that from every outside perspective should be living well. Debt shouldn’t be increasing, houses should be close to paid off and there should be a significant emergency fund because they make three to four times what Jon and I do and we’re able to do quite a few of these things. However, not everyone understands that their paycheck isn’t an entitlement to a certain lifestyle. A lawyer doesn’t automatically get to eat out at $70 a plate restaurants, a doctor can’t always afford a large million dollar home and even if all your colleagues seem to be able to afford month long European vacations, it doesn’t mean you’re able to.

Americans hear about living within their means all the time – but clearly it doesn’t sink in. At the end of last year more than two thirds of US citizens were living paycheck to paycheck with no buffer.

Cost of Living

This calculator shows you the cost of living in your area (limited to major city groups, but there should be one close enough to get an idea).  Once you understand the cost of living and evaluate your income, you’ll see how flexible you can be surrounding your priorities. These factors have no relation to your “Keeping up with the Jones’  counterparts.

Jon and I always joke about moving to the Midwest or Texas – even with our limited income we would be well on our way to home ownership. That calculator from shows you what your equivalent salary would be in the place you’ll be (if you’re moving) or what it would be if you moved to various places throughout the U.S. You may not have need of this, but I think it’s fun.

What you can afford

There are a few basic guidelines to determine what you can afford. Here is our list of determining factors:

  • You can afford rent or mortgage that doesn’t exceed 30% of your gross salary.
  • If you have debt – you should be able to put  10% or more of your income toward that debt.
  • If you have any credit card or personal loan debt, you should not take on any more debt. (Home ownership, loans or otherwise).
  • You should be able to invest money every month with consistency, whether $50 or $500 (regardless of whether you have debt).
  • You should be able to save at least 10% of your monthly income when you have finished paying off debt and a small amount each month if you are paying off debt.
  • Unless it’s a college education or a house, you should be able to pay in full.

These are pretty doable goals, but it’s shocking how many people REGARDLESS of their income don’t follow the majority of them. Individuals paying 70% of their income on their mortgage and scraping by to pay the rest of their bills. Folks who live well by house/food/leisure standards but have less than a months worth of expenses stored in the bank. People who have thousands of dollars in credit card debt but see no problem buying another house as an investment. Folks with most of their financial house in order who can’t seem to commit to saving for retirement.

What’s a necessity and what’s a luxury

Another common problem with our ability to save money and live within our means is our belief about what constitutes necessity. It’s amazing that many people find it a luxury to invest in a retirement account or save a few hundred dollars a month but feel like having access to their favorite television shows in essential. We’ve used this statistic before and we’ll use it again because of how ridiculous it is: 46% of Americans have less than $10,000 saved for retirement.

What separates middle class from those living in poverty

When I help out as a mentor there’s one consistent concept that the overseeing Love INC staff addresses in our mentor training. As a middle class person we generally value things like saving, retirement and thinking of the future. When someone is a product of cyclical poverty the way they live their life is focused on the present. This is because they are and always have been in survival mode.

It was difficult for me to defend my advice to those I worked with to save $10-$15 dollars a month. I just wanted them to have a small buffer between living from day to day and a tragedy plummeting them into insurmountable debt. What I’ve learned is that this concept is more than just differing views, it’s a cultural divide. We may both be Americans from Newberg, Oregon, but I live in the culture of middle class and this person lives in the culture of poverty. Our values are vastly different and while I perceive my approach and advice regarding finances would be helpful, they have not been brought up with concern for their future. It’s foreign to them.

(There are many things to learn from those who do live in the culture of poverty but few of them relate to finances).

I mention this only to invite those of us who consider ourselves middle class to think about where poverty begins. Cyclical poverty is often a product of not thinking enough about the future. Cyclical poverty can start with the fight to live from paycheck to paycheck. Cyclical poverty is by definition passed from generation to generation.

The takeaway:

Someone living off $800 a month can make it. They can make themselves into a person with 3 months savings. They can improve their future. The challenge is understanding what their means are, what necessities are and learning how to value their future as much as they value their present.

How are you taking strides to better your future? What statistic about individual savings and retirement frustrates you the most? How can we help one another to make these statistics better (short of taking control of everyone else’s lives…)


  1. I love this topic. I love saving and investing money on a small income. Sometimes I’m hesitant to make more money because I love living simply. Greed is contagious!

    What I’m curious about is your perspective on looking toward the future vs. living in the present. I constantly struggle with sacrificing for the future but also enjoying today. Any thoughts?

    • says:

      Shaina – I laugh at this question only because we have this conversation SO OFTEN. We have definitely not solved this tension. Something we try and do is ask ourselves if we feel really guilty or sad about not being able to enjoy some sort of event/gathering of friends/book/movie etc that we’d really love to but sacrificed for some financial reason. If we really want it we generally work it into our budget, it’s all about the flexible and responsible approach not about sacrificing EVERYthing. (I say that, but often forget it).

      We also try and not obsessively look at how our investments are doing. If we’re doing what we know we should be each month then we need to trust the auto pilot we’ve set up to do the work over time and not stress about how much it should/could be. It’s not about becoming billionaires, just about understanding what it will take to live comfortably in retirement and concentrating on putting what we know will get us there aside – it actually allows you to live more in the present if you think about it because when you’re 40-50 it won’t cause you daily anxiety knowing you have to put hundreds or thousands away each month, that’s the beauty of starting early.

      All that to say, for every strength there is a shadow and the strength of budgeting and simplicity does come with the shadow of not feeling free to enjoy the present. Trying to balance the two is very tricky.

  2. Ian Propst-Campbell says:

    You guys mentioned investing money on a consistent basis. What does that mean/look like for you guys right now?

    • says:

      We are fortunate that 2nd Street offers Jon a really nice matching program for retirement, so for him we just put in 3% and they provide 9% of his monthly salary. I’m probably the more common case in that I don’t have any retirement options as a part time employee so we put $100 a month away into a Roth IRA for me each month. This way we’re in the habit of contributing and although it doesn’t rise quickly it’s consistent and time is on our side. We also have put a little money into a mutual fund, we don’t invest consistently into this (our roth is also in a mutual fund but separate from the account I’m talking about). If we are given a large sum of money for something we choose to put a portion of it in retirement or this other mutual fund before using the rest to pay off debt.

  3. So many people need to read this. Unfortunately it seems that some times the ones that need the information the most aren’t even looking for it. I have so many previous clients that lived well above and beyond their means. I don’t know if its just lack of education or just being stupid. Living paycheck to paycheck and cash advances. Just because someone else has that expensive car doesnt’ mean you need or can afford it. So often when I was in banking I would see people pull up with the nicest cars and clothes and have a negative balance and a bunch fee in their account. We take to make sure that savings, 401k, and emergency funds are taken care of first. We would rather know we could do something vs thinking we are entitled to them. What bothers me mostly is that a lot of the people I know claim to never have money but have some of the best cars, the newest clothes tv, and take some of the best vacation but claim or seem to cry broke. Change your habits and fix the issues. Its not about the amount of money its what you do with it. Whether you make 50k or 1 million, bad with money is bad with money. Ever see all the people who go broke after winning the lotto?

    • says:

      It’s sad to see how many just don’t make the connection. I just wish there were more creative and less harsh ways of showing how much easier life would be if everyone was a little more careful and aware of their financial future.