Living below your means is a conscious decision to take control of your financial present and future. It means making a commitment to save money every month and to reduce your level of spending to achieve that goal. It does not necessarily mean reducing your standard of living or never doing anything that is “fun and exciting”, but it may mean re-evaluating what you consider “fun and exciting”. It definitely means creating your own set of values that is not influenced by your friends, family, coworkers or our consumer culture that tells you where to live, what kind of car to buy, what clothes to wear or where to go on vacation.
This Labor Day my wife and I will celebrate more that our forty-fifth wedding anniversary. We will also celebrate forty-five years of consciously living below our means. We are now retired, collecting our Social Security, and live in a 2000 square foot manufactured home on five acres of wooded land. Our two daughters are well-educated professional women. We can pay all of our basic living costs from my SS check, saving the balance. We both work part-time even though we don’t have too and I fill out my time by writing and volunteer work.
Living below your means is not for everybody; certainly not for the impulsive or easily influenced by peer pressure and Madison Avenue. It requires a certain level of self-confidence and a willingness to go against the financial grain and take some chances. Instead of paying for expensive vacations ourselves we enjoyed a two-year fully paid vacation in San Francisco, a three-year vacation in Chicago and, best of all, a five-year vacation in Europe, all courtesy of transfers by my employer which I gladly accepted.
Some of the rules we have developed over the years for living below your means are as follows:
- Save at least ten percent of your gross income. Contributions to a 401(k) or IRA count toward this goal, social security taxes do not.
- Don’t be afraid or embarrassed or afraid to tell your kids: We can’t afford it. (Even if you can)
- Don’t buy new cars. Buy one or two years old cars with low miles.
- Don’t spend more that three times your total earned income on a house.
- Don’t depend on house appreciation to cover your retirement savings shortfall.
- Make a budget and stick to it.
- Control entertainment costs.
- Be more aggressive with your investments when you are young and get more conservative as you get older.
- Involve the kids and make saving money a family process.
- Don’t skimp on food, buy good quality fruits, meat and vegetables.. Limit eating out and fast food.
- Reward yourself and the family on a regular basis for achieving savings goals.
Obviously this list could include hundreds of specific suggestions, but these eleven cover the major items. It’s all in your attitude about earning and spending money. The first few years are the hardest, but soon, if you stick to it, it will become a habit, and good habits are our friends.
Americans who wish to have a financially secure retirement need to lengthen out their time horizons. Persons born in 1990 had a life expectancy at birth of about 75 years, but by the time they reach age 60 that will have increased because of the improvements in medicine and healthcare. Many older people today are in danger of outliving their retirement funds because they are living longer that anyone ever expected them too.
You can spend it now or you can spend it later, but in our world of globalization and out sourcing it’s never a bad idea to have a bigger rainy day fund.
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Comments: 23
Great advice, and put together in a well thought out presentation.
superb advice. I will note that the get it now pay later mind set of our society is very hostile to your more sustainable view. But your view gets long term results, whereas the more prevalent view ends up with the consumer sucked dry and cast aside by virtue of payday loans and adjustable and second mortgages.
I will also note that our government shares responsibility for the looming credit disaster and the present housing bubble deflation by virtue of their eagerness to "prime the pump" of consumer finance in order to keep the economy humming in a largely fiction and unsustainable fashion. I like to get political sometimes, sorry, but it is not solely a matter of personal responsibiliity. The temptation to self destruct could have been finessed by a bit of governmental regulation, but certain politicians needed to payback the banks and credit card companies for all that lovely election campaign cash...... so they licked a few shoes and here are the results.
I rarely buy clothing any more - when I do, I try to hit the thrift shops. It has become a political ploy. I just don't want my money to go to the owners of sweat shops.
I rarely buy new books (HP#7 is an exception). In NYC there are many people who sell used books on the street - used book stores abound (and there's always the library for borrowing and buying), thrift stores have books also.
In addition, when I am finished with a book, I pass it on - through paperbackswap.com and bookmooch.com - they're both exchange programs.
I contribute about 25% of my income to the Tax Deferred Annuity program and in addition, save about $15,000 a year.
I am hoping to have the same take home pay after retirement as when I am working.
I used to carry a lot of credit card debt - NOT anymore!
Living in Hawaii, we dress casual. Name labels don't mean a thing vs comfort.
It blows my mind when I hear parents buy their children $200 sneakers.....or the $250 Wii games ...............
With the median annual household income, according to the 2005 US Census Bureau, at $46,326...and the average house cost at around $300,000...we'd need to legalize polygamy and polyandry to achieve your 3x's income threshold.
Maybe there's a shack out there that could be bought for $150k, but living an impoverished lifestyle wasn't the point of your article.
Housing prices vary widely across the country.
Living below your means is all about learning to prioritize. If financial independence is imprortant to you, buying more stuff will be less important.
Duane - congrats on your upcoming wedding aniversary.
I call this kind of living ... Volunteer Simplicity
& it doesn't even hurt :)
In fact I have just started a brand new website with that title:
www.freewebs.com/volunteersimplicity4u
Whom would watch their kids or, clean and paint their homes? Oh, wait...wasteful renters.
We found a house in a really tough market (houses selling in 12-36 hours), and we paid below the 3x threshold. Our sacrifice is only one family car and restoration/repair projects for many years. Others wouldn't want this lifestyle, but it works for us. If a mortgage needs to be more expensive, then make adjustments where you can and continue a saving pattern. That's all, it's just good general advice to adjust to each family's needs.
One week's pay = one house payment. If you compute that out you get about 3x / 4x depending on the interest. Depending on outstanding debt it's possible to be limited to even lower cost housing.
I don't believe the average cost of a house is $300,000. Where I live the average price is $95,000. I heard somewhere it's $165,000 nationally averaged for a 3 bdrm 2 bath.
In my unsupported opinion, the reason the cost of housing is high in some areas is simply there are too many rich people living there. If you wait a few minutes I'm sure there's a web site with exact figures.
The inability to save is a form of mental illness, as is the ability to save. There, I've said it. A whole lot of us are just nuts.
WHY? I just purchased a two bdrm, one bath, newly remodeled house for $45,000. Last year I purchased a 2 bdrm, one bath for $38,000.
We do save more than 10 percent of our gross income so I differ a bit with you on that. Why? Because people in my family, knock wood, tend to live a long time. Ten percent doesn't cut it, not even for my Depression era mother, who doesn't spend a cent needlessly. She embodies frugal but not "cheap". She saves money but knows when spending money is likely to lead to saving money in the long run. I'm sure you know the difference as well.
Although I cook nearly all our meals, I am a bit divided on the eating out issue. There are places near us where we can get healthy food for less money than it takes to cook the food myself. But we still eat at home most of the time. I still cook most of the time.
Loved your article and I wish more people lived this way. Why they do not is another topic and I hope you write about that. Give me a "heads up" if you do.