Living Below Your Means

You can achieve this "more than enough" state in two ways:

1. Increase your income

2. Decrease your expenses

While this seems like an "obvious" teaching, so many people are finding themselves in stressful situations because they are living too close to (or exceeding) their income levels. This is "living on the edge" living, and while it may seem exciting, it is the cause of most financial issues in families today!

In some situations, people attempt to live a lifestyle that exceeded their income. For example, if someone brings $3000 per month into their household, they want to live a $3500/month lifestyle! While this can be maintained temporarily by increasing debt to the limits, it cannot be maintained indefinitely.

I have seen this time and time again with my friends who have both spouses providing an income into the family. They immediately adopt a lifestyle that is dependent on 100% or maybe even 110% of their combined incomes. They buy the largest house that they can qualify for, putting down the smallest down payment that they can get away with, drive the newest cars, take expensive vacations or join country clubs. In this situation there is no saving for the future, and no opportunity to be a charitable giver, which is essential for long term prosperity.

It is very easy to fall into this temptation. Most people assume that whatever their current income level is now, it is bound to increase in the future due to raises, promotions, etc. However, if one spouse loses their income, which is very common in this volatile job market, the family suddenly finds themselves under tremendous stress and pressure to maintain their chosen lifestyle, often being forced to take on more debt. It is logical that the very economy that would cause a spouse to lose their job will often make it difficult to "downsize". Trying to sell your home in a down economy can be difficult as everyone is feeling the same pressure, homes are on the market, and values drop.

Another situation is someone in business, or someone who is paid on commission, such as a real estate agent. They may have a good month, or perhaps 2-3 good months, and assume that this level of income will continue (and grow) into the future. So, they adopt a lifestyle that is equal to that amount; for example, buy a new car, boat or lake house! When their business slows down or decreases, they find themselves in a similar situation, and suddenly their illusion of prosperity has turned to survival mode.

For a dual income family, a wise practice is to live a lifestyle that only depends on one income. As a general rule of thumb, live at about 75% of your current/average income level. For example, if one spouse brings in $2500/month and the other $2000/month, a family should try to adapt their lifestyles to be about $3500/month. This would leave plenty of abundance for saving for the future, emergencies, and to bless others through giving and charity. In this situation, should one of the spouses lose their source of income, it would be much easier to adapt their lifestyle to match their current income.

For business owners (or commission based jobs), a wise practice is to save any excess from "good months", to cover your bills during the "slow months". Don't make any immediate changes in your lifestyle level until you see that level maintained for at least 6-8 months. And then, only change your lifestyle to match 75% of that amount.

Now, I am not a proponent of living life like a miser or being afraid to enjoy life! However, by living at 75% of "capacity", you will enjoy the peace of mind of living in prosperity, no matter what your income is. This same principle applies whether you make $20,000 per year or $150,000. By allowing this "safety cushion" to exist, you will be better equipped to deal with emergencies, and to make major purchase with cash instead of incurring debt.

In our personal situation, we have always tried to adopt this principle, and teach it to our children. When the interest rates dropped, we refinanced our home to take advantage of the lower rates. We realized that, at the time, we could take out a 15 year mortgage instead of a 30, and the increase in payments was only about $200/month. So, for $200/month we could have our home paid for by the time our oldest child graduated high school. This was very appealing to us! (Now my banker step-dad said this was not wise, that instead, we should have gotten the 30 year and just paid double payments... so if your income situation changes, you can opt to pay less per month.)

When our children were about 11 and 14, we were feeling kind of cramped in our home and were very tempted to "upgrade" our home to a larger/newer one. We had many friends doing the same thing... moving to nicer, newer, larger homes. However, moving to another home at that point would have "reset" the clock on our mortgage and we would have been starting all over again. If we would have done an upgrade, we would most likely have had to finance for 30 more years... so instead of having our home paid for in 4 more years, we'd be taking on a new note for 30 years!

We resisted the temptation and stayed put. We did spend some money to fix up and remodel our home, which was a much cheaper solution than moving. In the long run, this served us very well! What a sense of peace we had when we were able to retire that mortgage when our son graduated!

The result of living below our means during those years is that today, we are very blessed to be living 100% debt free. We don't say this to "boast", but to show that these prosperity principles DO work. Our passion now is teaching others how to get out of debt and increase the prosperity in their lives.

It is never too late to begin transitioning your life to live within your means. It is never too late to find ways to increase your income stream so that the two sides of the equation (income vs. expenses) can come into proper alignment.

Published:Sunday, 1st Aug 2021
Author: 252

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