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Don’t Live Within Your Means

This article was written by in Debt Reduction, Personal Finance. 18 comments.

For as long as I’ve been reading about smart money management, “live within your means” has been the underlying mantra that, when uttered repeatedly and internalized, will result in a much more fulfilling life overall. By living below your means, you are sure to come out the end of each month with a net worth higher than the previous month’s, except for any poor investment performance. Building a financial future means eliminating debt and adjusting your wants and needs to be manageable within the income you receive.

Or does it? Laura Rawley argues that economists see this concept — the idea that one should only consume without acquiring debt — as limiting. Consumption smoothing is the idea that someone with an earning potential that resembles an upward slope could do better by enjoying life (and spending) early on rather than delaying consumption until a time when taking advantage of increased income would be less fulfilling. In other words, shop now so you don’t have more money than you know what to do with when you’re eighty years old.

There are obviously a number of faults with this approach. To name a few:

  • Borrowing at a young age based on future income potential is risky. What if your income never hits that upward slope?
  • Buying a BMW and going into debt now rather than a slightly used Honda Civic with cash could prevent you from making more meaningful investments.
  • If you grow accustomed to living beyond your means now, unless you’re willing to make a significant change in attitude, your desires will just be greater later on, and your income will never catch up.

Nevertheless, there is a lot of value in the idea of enjoying life while you’re living it. You can’t put off all of your wants until later. The best option is to find affordable ways to handle the desires that may be beyond the reach of affordability, but lifetimes are relatively short when compared to the span of a culture.

Also, certain types of spending are likely to enhance your earning potential over time, and it is worthwhile to take some financial risks. Borrowing for a college education is often used as an example — but don’t forget there are ways to get a quality education without spending a lot of money. Personal preference and skills play roles — if everyone chose career and education paths based on likely return on investment, we might all be engineers studying in schools outside the United States.

In her article, Laura Rowley provides the example of a novice author who hires an editor, beyond her means, with the hopes of securing a deal for her first book faster. This is more of a business expense rather than the consumption, but it shows how taking a risk by laying out some of your own financing can be helpful in getting a jump start in a career. A better example pertaining to consumption could be the novice real estate agent who, in order to secure clients interested in more profitable locations, will buy accouterments that signal luxury, like expensive cars and fancy clothes. Again, these are still business expenses for which there is an argument that a little “investment” is necessary for financial success.

For most people, the concept of living within one’s means should be the general philosophy for spending, but balance is important. Life is short, so enjoy it. The more you can find ways to enjoy it that still allow you to live within your means, the more fulfilling your life will be now and in the future. If you’re in control of your finances, spending today to take advantage of the idea of consumption smoothing is not the worst thing in the world. One shouldn’t, however, use consumption smoothing as an excuse for making poor financial choices that ignore the consequences of increasing consumer debt.

Yahoo Finance

Updated December 22, 2011 and originally published June 17, 2011.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 18 comments… read them below or add one }

avatar 1 Anonymous

I’ve been arguing this case for a while too. When you’re young, you can go places and do things that you won’t physically be able to do when you get older. Of course you have to save for the future, but after you save a certain amount, you have to enjoy your money. What is it for otherwise? Charity is a good thing but the only other alternative is passing on to the next generation.

Buying a car you enjoy driving is a meaningful investment to me. It’s one of the few items that many of us use every day. Plus, safety matters in a vehicle and driving an older vehicle with less safety features puts you at unnecessary risk if you can afford a newer vehicle.

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avatar 2 Anonymous

I think there is something to be said about smoothing out consumption. Sometimes the timing of certain events (like birth of a child) can change your original plans. I know that happened for us. But I am pleased to say that I think our lifestyle and desires have peaked so now is the time to prep the balance sheet for the later years.

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avatar 3 Anonymous

What is interesting about rules of thumb is it applies to most of us, but not all of us. With any concept, you have to apply common sense. Extreme diets work, but you cannot stick with it. A more reasonable approach like weight watchers works much better in the long run. The same kind of approach will work with money or finances.

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avatar 4 shellye

I am all for a good life/work balance, and doing the things you enjoy. I think Laura Rowley’s philosophy is a bit off balance, though. Young adults who run up credit card bills “enjoying life” seldom have the means to pay them off, even in a timely manner. A person still needs to live within his means, while making the occasional wise splurge, so they don’t spend the rest of their working lives paying off high-interest credit card debts.

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avatar 5 lynn

I agree with SHELLEY’s concepts. It’s worked for generations. It can work for today’s generation, as well.

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avatar 6 Anonymous

I once read an article (maybe on this site) wherein the author railed against those who were spending everything they earned. The article written in 1905 bemoaned the spendthrifts for having not prepared for infirmary or rainy days. Of course 1905 was well before Sears and Roebuck introduced the little round disk with numbers that invited many into the dark world of unsecured debt. Those little disks evolved and morphed into the enormous unsecured debt industry we have today. Wonder what the author might write about if they could see the number of people spending MORE than they earn and routinely feeding their wants with little regard for rainy days or infirmary. It wasn’t Bush or Obama, bankers, mortgage companies, or “wall street” – it was Sears and Roebuck ;-)

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avatar 7 Anonymous

People often use the same excuse for money as they do with health: “You could tomorrow”. Ok, that is possible but what if you don’t? I hope you like eating dog food because if you live by this mantra that is what you will be eating when you get to retirement age. Life is about balance, me and my wife spend money on traveling but we don’t go overboard.

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avatar 8 Anonymous

Sorry, “You could die tomorrow”.

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avatar 9 Donna Freedman

Moderation in all things — including moderation. If you save every dime possible on the theory that you SHOULD save it, you might a pretty unpleasant life.
On the flip side, “enjoying life” on plastic can’t last as a lifestyle. But it might be OK to spend more on a particular experience — say, you have the chance to travel to Italy and house-sit in a beautiful villa, but it will take you a few months to pay off the airfare. If you weren’t actually in debt or in any financial danger, I’d say go for it. How often do you get a chance like that?
But if “enjoying life” means eating every meal out at chain restaurants, paying for 200 cable channels you rarely watch, shopping as sport for items that don’t really mean anything to you…You might want to reconsider. You might also offer to take ME shopping. ;-)

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avatar 10 skylog

i agree donna, i do not think there is a better answer than the one you gave here.

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avatar 11 lynn

LOL, When I go shopping, I will take you with me. Don’t hold your breath for too long though.
Donna said it all. I agree with her philosophy.

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avatar 12 Donna Freedman

P.S. I forgot to specify that I think you should live BELOW your means whenever possible (and comfortable), so that when great opportunities come your way you’re in a position to pounce.

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avatar 13 wylerassociate

it’s all about moderation and spending money on things you value and what you need. Donna makes a great point that it’s foolish to spend money on things you won’t use often like hundreds of cable tv channels, buying things you won’t need but want.

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avatar 14 Cejay

We do live within our means but I get what you are saying. When my hubby was looking for a job a few years back he bought a VERY nice suit at close to $200.00 and shoes at $100.00. This was clearly not within our means but the reason behind a good suit made it worth the investment. I will buy outside our means when the expense is warranted.

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avatar 15 Ceecee

As a caretaker of an elderly person, i can’t emphasize enough what expenditures can become when one is old and infirm. I think finding a balance is key. If you save nothing, you may not have enough to stay in your home when you are older. Many people end up in nursing homes because Medicaid will foot the bill of you are poor. They will not, at this point, foot the bill for you to stay at home with hired help. Money means more choices.

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avatar 16 lynn

Our county just adapted a plan for seniors to live with a relative and they would foot all the bills. Our nursing homes are packed and very expensive. This is a less expensive solution.

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avatar 17 tbork84

My take on retirement savings I borrow from William Bernstein : “The goal is not to maximize the chances of getting rich, but rather to simultaneously allow for a comfortable retirement and to minimize the odds of dying poor.”

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avatar 18 Anonymous

Great article – very insightful! Impulse spending can also influence how much we spend – or save. I liked this article: – Kicking the Habit: How to Put a Halt to Impulsive Buying |

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