Jeanne Sahadi takes the simple question, “How do you define ‘living within your means?’” and turns it into some kind of poorly-dubbed martial arts movie or strange game show (if you judge by the title of the article). Nevertheless, I agree her with her analysis of the above phrase:
Ideally, I’d define living within your means as spending less than you earn, saving some of your income and having no debt. The exception being debt that lets you build net worth, such as buying a home, getting a degree or making a home improvement that builds equity.
The author outlines an example expense analysis of a $75,000 income household living with its means.
| Taxes: | $1,238 |
| Housing: | $1,562 |
| Household Exp.: | $1,655 |
| Insurance: | $ 402 |
| Car Loans: | $ 400 |
| Transportation | $ 100 |
| Retirement Savings: | $ 500 |
| College Savings: | $ 300 |
Figuring those numbers as a percentage to the total income, I am definitely paying too much in some areas. Take, for example, transportation. If a household with an income of $75,000 should only be paying $100 for parking, gas, and tolls, then I’m way “ahead” of the game. I spend about $250 on transportation a month just for work alone, including tolls and gas. The $250 doesn’t figure gass and tolls when traveling to visit friends or volunteering on weekends. That’s more than double the example, a household earning almost twice my salary.
Simple solution: I need a better paying, closer job.
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Another possible solution is that those are unrealistic numbers. I mean, $100 for transportation for a FAMILY? I don’t buy it. Especially not with gas prices as high as they are. Maybe if you work right around the corner from your house and you never go anywhere except work, then maybe that’ll get you through the month.
I’m also wondering what “taxes” includes? Is that just property taxes or does that include income tax? If it’s the latter, then it’s a pretty low number for this area…
Well, the article did explain that the housing number includes property taxes while the taxes number includes federal and state income tax. But the numbers are definitely a little off with what you would pay in this area.
Maybe everyone in this area is just living beyond their means…. :P
My wife and I live in Houston, and each of us spends about $40 on gas each month. Since we don’t have car loans, that’s $400 a month to spend.
If this were a real person, I’d grill them and get them take the budget numbers apart. In our experience, the more you lump numbers together on your Excel spreadsheet (or ledger paper), the easier it becomes to gloss over the excessive booze-and-cheese purchases, or cable bill, or phone overages, or whatever.