Last Updated on: September 20, 2023
We all heard the phrase “live within your means” from various financial literacy advocates. I also mentioned this a dozen times.
However, this simple motto is one of the most important personal finance concepts that will greatly help you in your day-to-day.
So, what do we mean by living within our means, and how can we successfully change for the better?
Table of Contents
What is Living Beyond Your Means?
Before we tackle living within our means, we must first understand what living beyond our means is like.
Living beyond our means happens when we spend more money than we bring home. For example, if you’re earning P20,000 but spending P22,000, then you’re clearly living beyond your means.
When this happens and you are P2,000 above what you earn, where does the P2,000 come from? The common answer is through debt. It doesn’t matter if it’s from credit cards, personal loans, or cash advances.
If you spend more than you make, you will continuously run in the never-ending rat race cycle.
Why Do People Live Beyond Their Means?
There are various reasons why people live beyond their means. These are some of the things I observed.
1. They lack proper financial education.
People live beyond their means because they were taught at a young age that it is natural to always be in debt and that it’s just a truth of life.
Sadly, this is very common among many people, regardless of their educational background, since financial literacy is rarely (if ever) taught in our schools.
The good thing is that social media now offers more avenues to learn about financial education. The only hindrance left is the emotional attachment to spending.
2. They want instant gratification.
We now live in an instant world where many modern humans are accustomed to getting almost everything faster than ever.
We have instant food where removing cooking, instant money from ATMs removing bank cashiers, instant messaging removing snail mails, and instant deliveries, removing the need to go to a physical store.
We can’t live without these “instant” conveniences anymore, making more people desire instant gratification.
So, even if they don’t have the money to buy stuff they want, they will buy things using credit cards and debt instead of waiting and saving for it.
3. They think of credit cards as free money.
Credit cards are a double-edged sword in modern living. On the one hand, you can conveniently pay for purchases abroad with it. On the other hand, it can drag you into a debt trap if you’re not careful.
The sad thing is that these credit cards are often offered to everyone regardless of their financial status and mental preparedness, resulting in many young and old adults getting trapped in the world of consumer debt.
To be fair, a credit card is not inherently bad, and it can be helpful and convenient, but it requires a lot of discipline.
4. They experience unexpected expenses.
Another common reason people go beyond their means is when an unexpected expense happens, and they don’t have an emergency fund, like a job loss, a natural calamity, or a family member getting ill.
This is why we need to have an emergency fund always to have funds ready if something happens that will push us to go beyond our budget and move beyond our means.
What is Living Within Your Means?
Now that we discussed what living beyond your means is, we can differentiate it from living within your means.
Living within your means simply states that your expenses should not exceed your income.
This way, you can avoid getting into debt traps and be more disciplined with your spending habits.
What’s even better than living within your means is living below your means so that you are not only breaking even but ensuring you have enough money to save.
Going back to the P20,000 salary example, if you want to ensure that you live within your means, your total monthly expenses must be at most P20,000.
However, if you want to commit to living below your means, you should at most spend only P18,000 to have a P2,000 saving each month.
Tips on How to Live Within Your Means
Living within your means is simple, but following it can be challenging, especially if you have yet to build your discipline. Here are some tips on how to live within your means.
1. Set a budget and stick to it.
Setting a budget and sticking to it is the most effective way to ensure you don’t spend beyond your means. By budgeting, you are placing a name on every peso you make.
So if your budget tells you you don’t have enough to buy a new phone or go on a vacation, you must follow it and wait a little longer.
2. Track your spending.
The better half of having a budget is tracking your expenses. If you know where your money is going, you can easily identify if you’re going beyond your budget and are living beyond your means.
3. Use the 30-day rule when buying an expensive item.
The 30-Day Rule is a way to avoid impulse purchases. Basically, you will delay your purchase for at least a month to think about the purchase if you really want or need it.
4. Limit social media.
Social media is a highlight reel that causes many to feel envious that they don’t have a lot of things their peers, while they have none.
By limiting your social media usage, you can avoid the feeling of FOMO and just live your life within your means.
5. Only bring enough money when going out.
This is effective, especially when going grocery shopping or eating out. Having only enough money based on your budget will help you stick to it.
But also ensure that you will refrain from using your mobile wallets because it will only lose the purpose of bringing only enough cash when going out.
6. Use cash as much as possible.
There is a saying that cash is king, which helps ensure you will stay within your means. Since you’re on a cash basis, you can only spend what is necessary since your cash on hand is limited.
7. Set financial goals.
Setting financial goals is another effective way of ensuring that you’re living within your means. By having financial goals, you can set your mind to sacrifice a now to accomplish your goals.
8. Try minimalism.
Minimalism is a concept of limiting material possessions and being mindful of the things we accept in our lives. Minimalism also has a great application in our finances and ensuring that we live within our means.
9. Be honest with yourself.
Lastly, we need to be honest with ourselves. No amount of tips and tricks will ever be enough if we are always rationalizing our overspending habit and not being accountable to ourselves.
Living within our means is simple, but it is not easy because our emotions usually make the decision.
If you want to avoid falling deep into the rat race, the best preparation is to ensure you are not running in a cycle of income and expenses and living paycheck-to-paycheck.
Take control of your finances and act accordingly.