The Opposite of Living Beyond Your Means

How do you know if you’re living beyond your means? It might go something like this: You have a job. Pay rent. Have a car.

You didn’t have the cash for the car so you got a car loan. Each week or month you commit a large chunk of money to maintaining a depreciating asset.

You go shopping, eat out whenever you like, live your life. You put your vacation on a credit card.

Eventually, you have no credit available, the credit card is maxed and you start to panic. You are up sh*t creek. There is no paddle. This is living beyond your means. I’ve been there.

If you are like me the panic is accompanied by the painful awareness that you have no idea how to change your situation. You consult Dr. Google.

You will start to read everything you can about money management
You will be terrified. There will be a period of intense disappointment when you realise how different things could have been.

You cannot change the past, so you resolve to alter the future. You find a strong stick and drag your way out of that quagmire of a creek, eyes cast towards your feet in shame.

I know this story well because it is mine. Like many people who blog about money, I hit bottom before I learned how to manage finances.

And yet, my husband and I have recently celebrated one year of travel. From New Zealand to the USA to Mexico and Europe. A Mediterranean cruise. Disney World. All paid for with savings. No debt at all.

It’s been epic. And once upon a time, I was just like you, spending more than I earned and stressing about money. Let me tell you how I turned my finances around.

How I Started to Live Within My Means
Living within your means is achievable for everyone. For me, I had to ignore my income and focus on my expenses.

I drew up a budget that accounted for everything we needed, regardless of how much we earned. I was aware of our income limitations of course, but they did not dictate how I budgeted.

The figure changed slightly to account for increases in expenses as I went from living in a shared house with housemates to living in a one-bedroom apartment and then to living in my own house with my family.

You see, the problem with budgeting the other way round – by working out what you earn and then how to divvy it up to cover what you need/want – means you’ll never have a spare dollar. I promise you every gap will be filled.

If you are a master budgeter you might plan savings as part of your budget but the reality is that most people don’t pay themselves first. They pay the bills and then what’s left has to cover everything else. There might be a little leftover for savings, but more than likely that little bit will go on crap you don’t need.

Our first year as parents was a financial shock to the system. We were used to earning two full-time incomes which allowed us to save over 50% of our combined income. The system of budgeting I describe below is the only thing that kept us afloat (and has done ever since).

If you need to start living within your means, have a read of this post. I went from serious spender to frugal and fantastic in a matter of years, just by using this specific budget for getting out of debt. Stop living beyond your means and get your finances under control today.Save

How do you know if you’re living beyond your means? It might go something like this: You have a job. Pay rent. Have a car.

You didn’t have the cash for the car so you got a car loan. Each week or month you commit a large chunk of money to maintaining a depreciating asset.

You go shopping, eat out whenever you like, live your life. You put your vacation on a credit card.

Eventually, you have no credit available, the credit card is maxed and you start to panic. You are up sh*t creek. There is no paddle. This is living beyond your means. I’ve been there.

If you are like me the panic is accompanied by the painful awareness that you have no idea how to change your situation. You consult Dr. Google.

You will start to read everything you can about money management (start with this book, it’s the one I wish I’d read ten years ago).

You will be terrified. There will be a period of intense disappointment when you realise how different things could have been.

You cannot change the past, so you resolve to alter the future. You find a strong stick and drag your way out of that quagmire of a creek, eyes cast towards your feet in shame.

I know this story well because it is mine. Like many people who blog about money, I hit bottom before I learned how to manage finances.

And yet, my husband and I have recently celebrated one year of travel. From New Zealand to the USA to Mexico and Europe. A Mediterranean cruise. Disney World. All paid for with savings. No debt at all.

It’s been epic. And once upon a time, I was just like you, spending more than I earned and stressing about money. Let me tell you how I turned my finances around.

I drew up a budget that accounted for everything we needed, regardless of how much we earned. I was aware of our income limitations of course, but they did not dictate how I budgeted.

The figure changed slightly to account for increases in expenses as I went from living in a shared house with housemates to living in a one-bedroom apartment and then to living in my own house with my family.

You see, the problem with budgeting the other way round – by working out what you earn and then how to divvy it up to cover what you need/want – means you’ll never have a spare dollar. I promise you every gap will be filled.

If you are a master budgeter you might plan savings as part of your budget but the reality is that most people don’t pay themselves first. They pay the bills and then what’s left has to cover everything else. There might be a little leftover for savings, but more than likely that little bit will go on crap you don’t need.

Our first year as parents was a financial shock to the system. We were used to earning two full-time incomes which allowed us to save over 50% of our combined income. The system of budgeting I describe below is the only thing that kept us afloat (and has done ever since).

Side note: I believe living on one income and saving the other is the number one way for couples to save – especially in the years leading up to starting a family. Years of living on one income and pretending like the other didn’t exist is the whole reason I was able to ignore my means when drawing up my first family budget.

I’m not talking about just surviving here. This site is called Money Can Buy Me Happiness – not Having No Money Makes Me Hate My Life.

Your FLC should include everything you need to stay alive and ahead of your creditors and a small allowance that you can blow however you want. For example, the budget I drew up gave us a little fun money ($25 each per month) and covered all the big expenses (mortgage, insurance, groceries, electricity etc).

The most recent amount – pre-travel – that I could whittle my FLC down to was $2500 per month or $30,000 per year. That included mortgage payments, insurance, taxes, rates, electricity, internet, cable TV, groceries, daycare, all car related expenses, clothes, medical, fun money. Everything.

On the first of every month, $2500 was transferred from the mortgage offset account into the ‘Bills’ account and we lived as if $2500 was all we had. Every single wage or salary payment was made direct to our mortgage offset account.

Depending on where you live, $2500 may or may not be a lot of money. In New Zealand, it’s not a lot of money.

Our house expenses accounted for just over half of that and we were very careful with the remainder. Our home is in a city with lots of wonderful parks and woodlands to explore for free so we made the most of low-cost activities.

Our income during this period varied from $3500 per month right up to $5000. As one of us was always a stay-at-home parent our ability to increase earnings was limited but the important thing is our expenses never varied.

How To Budget Around Your Core Expenses
If you are interested in budgeting around your core expenses, instead of letting your income dictate what you spend, here’s is how I do it.

1. Work out what you actually need to live each month
Here’s where you’ll need to sit down with a pen, paper and your bank statements or online banking open.

If you need to start living within your means, have a read of this post. I went from serious spender to frugal and fantastic in a matter of years, just by using this specific budget for getting out of debt. Stop living beyond your means and get your finances under control today.Save

How do you know if you’re living beyond your means? It might go something like this: You have a job. Pay rent. Have a car.

You didn’t have the cash for the car so you got a car loan. Each week or month you commit a large chunk of money to maintaining a depreciating asset.

You go shopping, eat out whenever you like, live your life. You put your vacation on a credit card.

Eventually, you have no credit available, the credit card is maxed and you start to panic. You are up sh*t creek. There is no paddle. This is living beyond your means. I’ve been there.

If you are like me the panic is accompanied by the painful awareness that you have no idea how to change your situation. You consult Dr. Google.

You will start to read everything you can about money management (start with this book, it’s the one I wish I’d read ten years ago).

You will be terrified. There will be a period of intense disappointment when you realise how different things could have been.

You cannot change the past, so you resolve to alter the future. You find a strong stick and drag your way out of that quagmire of a creek, eyes cast towards your feet in shame.

I know this story well because it is mine. Like many people who blog about money, I hit bottom before I learned how to manage finances.

And yet, my husband and I have recently celebrated one year of travel. From New Zealand to the USA to Mexico and Europe. A Mediterranean cruise. Disney World. All paid for with savings. No debt at all.

It’s been epic. And once upon a time, I was just like you, spending more than I earned and stressing about money. Let me tell you how I turned my finances around.

The figure changed slightly to account for increases in expenses as I went from living in a shared house with housemates to living in a one-bedroom apartment and then to living in my own house with my family.

You see, the problem with budgeting the other way round – by working out what you earn and then how to divvy it up to cover what you need/want – means you’ll never have a spare dollar. I promise you every gap will be filled.

If you are a master budgeter you might plan savings as part of your budget but the reality is that most people don’t pay themselves first. They pay the bills and then what’s left has to cover everything else. There might be a little leftover for savings, but more than likely that little bit will go on crap you don’t need.

Our first year as parents was a financial shock to the system. We were used to earning two full-time incomes which allowed us to save over 50% of our combined income. The system of budgeting I describe below is the only thing that kept us afloat (and has done ever since).

Side note: I believe living on one income and saving the other is the number one way for couples to save – especially in the years leading up to starting a family. Years of living on one income and pretending like the other didn’t exist is the whole reason I was able to ignore my means when drawing up my first family budget.

I’m not talking about just surviving here. This site is called Money Can Buy Me Happiness – not Having No Money Makes Me Hate My Life.

Your FLC should include everything you need to stay alive and ahead of your creditors and a small allowance that you can blow however you want. For example, the budget I drew up gave us a little fun money ($25 each per month) and covered all the big expenses (mortgage, insurance, groceries, electricity etc).

The most recent amount – pre-travel – that I could whittle my FLC down to was $2500 per month or $30,000 per year. That included mortgage payments, insurance, taxes, rates, electricity, internet, cable TV, groceries, daycare, all car related expenses, clothes, medical, fun money. Everything.

On the first of every month, $2500 was transferred from the mortgage offset account into the ‘Bills’ account and we lived as if $2500 was all we had. Every single wage or salary payment was made direct to our mortgage offset account.

Depending on where you live, $2500 may or may not be a lot of money. In New Zealand, it’s not a lot of money.

Our house expenses accounted for just over half of that and we were very careful with the remainder. Our home is in a city with lots of wonderful parks and woodlands to explore for free so we made the most of low-cost activities.

I also bought a cheap home espresso machine so I could make proper coffee at home. That single act saved us thousands.

Save
Our income during this period varied from $3500 per month right up to $5000. As one of us was always a stay-at-home parent our ability to increase earnings was limited but the important thing is our expenses never varied.

Point of interest: The minimum wage in New Zealand is currently $14.75 per hour. A family with one full-time employee earning the minimum wage working 40 hours per week would take home $497 per week. If that family had one child (as we do) they would receive additional tax credits from the government of $152 per week bringing their total minimum take-home income to $649 per week or around $2800 per month. Although I never planned my family budget around these figures it’s comforting to know we could still live well if we were ever forced to take a minimum wage job.

Want more details?
I’m redoing my entire budget right now and I’ll be outlining all the steps for my readers. If you’re interested in budgeting this way, sign up below and I’ll let you know when the tutorial is live. I’m not selling anything. I’ve had so many emails from readers who want more details so that’s what I’m doing.

If you are interested in budgeting around your core expenses, instead of letting your income dictate what you spend, here’s is how I do it.

1. Work out what you actually need to live each month
Here’s where you’ll need to sit down with a pen, paper and your bank statements or online banking open.

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For now, ignore your income. What you need is a list of your core expenses. For most, that’s mortgage/rent, insurance, utilities, food, transport costs, debt repayments, memberships, subscription, gifts. I also recommend setting aside an amount as fun money or blow money or whatever you want to call it. Restrictive budgets fail (they are similar to diets in that sense).

Look at your bank statements for an accurate picture of where you currently spend your money.

Add together all those categories into a monthly sum you require to live. Now you need to look at your income to make sure you’re earning more than you need to spend.

Note: If your monthly figure is more than you earn, you need to go back to the drawing board. This budget relies heavily on consciously living within your means, so you’ll need to cut costs in order to get your monthly expenses lower than your income amount.

2. Get a month ahead
This is probably the hardest step but it’s the most important. The only way my budget continues to work is because I am able to pay for next month’s living costs using money earned this month. We do not live hand to mouth anymore.

In order to get one month ahead on your budget you need to carefully calculate exactly what you need to spend each month, and then allow an extra buffer.

I figured we’d need $2500 per month in order to pay all of our bills and feed the kids well. We had that amount in savings but if you don’t have savings, I recommend checking out this post to get you started with your monthly nut.

3. Budget monthly, regardless of pay frequency
On the first day of our monthly budget, I get online and transfer the amount of $2500 from our ‘Savings’ account to our ‘Bills’ account. I need to have separate bank accounts for this system to work.

I then pay all the essentials – transferring the monthly amount to the mortgage, a monthly grocery allowance to the everyday account, and keeping what’s left over in the Bills account for direct debits.

4. Accumulate funds in a separate account
All the wages and extras – my business income and tax credits – accumulate in the ‘Savings’ account. I leave them there until we hit our monthly sum of $2500.

Sometimes that will take 4 pay weeks, sometimes it takes 3. We’ve had some cracking bonus weeks’ where we’ve hit our living costs for next month in 2 weeks. I love those months but they’re not the norm.

Regardless of how long it takes to hit $2500, the next step is the same. I gleefully transfer the excess into our travel savings account. For now, that is our main focus so we save towards that each month.

5. Live as if the monthly sum you’ve budgeted is all you have
This is perhaps the most testing step, you must live as if you only have your monthly allowance. In the beginning, I struggled with this as I knew I had more money in a different account, but now it’s become second-nature to only spend the set amounts in each category of our budget. Having the large lump sum for my groceries each month is especially helpful, as it allows me to stock up on bulk-buys or clearance deals when I see them.

Review and amend
At the end of each month, I review our spending to make sure we haven’t overspent. I also review whether we’ve given ourselves enough to live on comfortably.

Here are some Reasons It’s Smart To Live on a Fixed Amount:

You always know what you’ve got available. The amount never changes. You will adapt and become an ace at keeping spending in that category within the right range. Living frugally becomes second nature.
The temptation of lifestyle inflation is eliminated. All of your salary increases, tax refunds and other extras hit the bank account and have no impact on your spending. Your spending stays the same, whether you earn 50k or 100k.
It’s easy to ascertain the amount you’ll need to retire early or travel the world for a year.
If you ever need social assistance due to job loss you are already used to spending small. You will adapt faster than someone who has been living week to week.
You will be filled with that warm fuzzy feeling that you are building wealth. It will help with the challenging times.

The Importance of Having Goals
Living this way has now become the norm. Being able to travel extensively with my family is worth every sacrifice. As I put together a plan to chase the summer around the world my budget will tighten and I’ll have to find ways to reduce my FLC even further.

Without this huge, crazy dream I’m certain I wouldn’t be motivated to cut costs and keep such a close eye on things.

You need a big hairy goal to keep motivated when things get tough, so work out what that is and get started making it a reality.

I firmly believe we are capable of anything we put our minds to. But we must put our minds to something. Whether it’s paying off debt, travelling, starting a family or raising a deposit for your first house – there must be a motivating factor.

Frugality for frugality’s sake would be hard to maintain. The knowledge that I am living well within my means and the desire to achieve my goals gets me through the tough times. Endless summer, here I come.