How to Live Within Your Means

(Originally published on my frugal blog on January 26 2008)

One of the tag lines of my frugal blog was “living within your means to increase wealth“, and I’ve had a few people coming here looking for more information on that topic.

These are smart people who also realize that the realistic path to wealth is making right financial choices.

In this article I will share with you how you can live within your means. Don’t worry, I won’t ask you to buy anything from me.

What Are My Means?

If you have always wondered what the word “means” means, it is actually another word to describe wealth or income. You could say that a rich man is someone with “impressive means”.

You may hear someone say “I wish I had the means to buy a new house”, which gives you a better understanding of the meaning of the word.

In short, your means describe your wealth. It includes everything you have and your earning power.

How Do I Live Within My Means?

1. Be Aware of Your Means

The first step is to find out where you stand. You need to know your limits before you can plan to live within your means.

What I usually do to be aware of my means are:

  1. Take a look at my budget to see what my expenses are and where my income is coming from.
  2. Study my savings accounts to see how comfortable or “safe” I am.

After doing these things, I will know exactly how much money I can afford to use without getting into debt or using my savings unnecessarily.

2. Set Financial Boundaries

After I know what my means are, I set financial boundaries for myself.

Some examples of boundaries I may set are like:

  1. Eating out 1-3 times a week is fine, but eating out more than that is not allowed
  2. Buying a new hand phone below RM500, once every three years is okay but spending RM1000 on the latest phone model is beyond my means.
  3. I can afford to buy a second hand car, but buying a new car is not a good idea.

Note that the financial boundaries will be different for everyone. The examples above may not be applicable to your situation.

3. Control Your Spending

After you have set financial boundaries for yourself (and your family), you need to actively monitor your expenses to ensure that you are not spending beyond your means.

If you are not aware of your spending, you will sometimes find out that you have spent more than you intended too.

I once got a shock when I received a RM8000 credit card bill! It was certainly beyond my means at that point in my life. I lived beyond my means just because I had forgotten how the many small purchases I made added up to a huge amount.

If necessary, you need to control your expenses. In short, controlling your expenses involves:

  1. Limiting your spending. Predetermine how much money you can use each week or each month
  2. Limiting your recurring expenses. Watch out for those monthly payments and subscriptions
  3. Avoid impulse shopping

A budget can be so useful tool to help us control our expenses. If you have missed it, you can read up on how to create a budget.

4. Identify Your Needs Versus Wants

It is also important to always identify your needs versus your wants when you are about to purchase something.

A product is usually more expensive because it has more features or functions. Therefore buying an item that has features you don’t really need is not living within your means.

Let me illustrate. If you ever bought a new computer before, you will notice how computers come in different price ranges. The fastest, coolest computers cost up to four times more than a basic model.

In actual fact, most people can make do with the basic model but sometimes they don’t because they are attracted to the higher end models. Sometimes they even end up spending more than they can afford.

Some possible results of not separating your needs and wants are:

  1. Buying something that won’t meet your needs
  2. Paying for features you won’t use
  3. Paying more for a brand name

5. Managing Debt

Another way to live within your means is to manage your debt wisely.

There are two ways to manage your debt.

  1. Stay away from it
  2. Pay it off as quickly as you can

Staying away from debt is harder that we think. After all, credit cards are offering 0% repayment plans and it is so easy to get a car loan or home loan nowadays.

There’s the temptation of buying something right now, of gratifying ourselves even when we know we can’t afford it yet. If we are not careful, we can end up giving a considerable portion of our income to repay the bank.

For most of us who have to take housing loans, it is the frugal beagle way to pay off the housing loan as quickly as you can. In fact, you should make it a point to pay more than the monthly installment so that you can knock off the loan principal faster.

Living beyond your means will always get you stuck in debt.

6. Consider the Environmental Factors

When you are about to make a major purchase, it is also important to consider environmental factors. Factors like economic situation, changing trends, and even age will impact your financial standing in the future.

If you think that the economy is headed into a recession, then it wouldn’t be very wise to purchase a brand new car. You could lose your job! If you are near retirement or your children are about to go to university, it won’t be smart to purchase a new bungalow and a new car.

If you know that a new product model will be released soon, wait for the price to drop instead of paying full price now.

These factors are important because they can determine if you will still be living within your means in the future.

Conclusion

To summarize, living within your means is possible if you:

  • Have awareness
  • Control your spending
  • Plan
  • Practice discipline

I hope that I have helped you understand what it takes to live within your means. Feel free to share any tips and ideas you have in the comments section.

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