When speaking to friends, family members, and even clients about their finances, I usually find one common theme – they are living above their means. Living above your means seems to come from a particular mindset, shared by many, that is detrimental to our finances.
For some reason, we Americans have a sense of entitlement. We feel as though we deserve everything, no, the very best of everything, simply because we were born! Even with the move toward frugal living, I find that this sense of entitlement is very strong!
Living Above Our Means
“Living above your means” is a term that indicates that your lifestyle is not supported by your income. This term applies to both people who earn $100k in a year but spend $110k, as well as those who earn $20,000 and spend $20,500 each year!
Many times when I witness this type of financial situation, it is largely the result of behavior and choices, rather than uncontrollable circumstances of life.
Simply put, most of us believe we deserve everything that we desire regardless of the cost! We rarely ask ourselves, “What can I afford?”, but instead we decide what we want and then go beg a bank to support our indulgences! It’s gotten to the point now where you can even buy a computer or an MP3 player for a few dollars per month!
Most of the time we have a picture in our mind that represents the life we want, then we go after it no matter the cost – and no matter our income! This is completely backwards, and this is the number one reason that the average American is in debt!
We feel that we are entitled to our desires, just because we are breathing. This doesn’t just show up in our purchases, but also in how we view life.
Don’t get me wrong, a lot of wonderful and useful things have come out of someone not being satisfied with their situation, and therefore, striving to improve it. However, if that feeling only leads to complaining, stealing, or borrowing to get what we want, then it’s a horrible trait to have!
The idea of spending money that we don’t have is so common to us, that we do it without even thinking about it. We have gone from a nation of people who worked hard to try and improve their life – understanding that they could only go as far as their income and bank accounts would allow – to a people who would rather live and die in debt than to work hard!
We are like children
This attitude reminds me of a child who sees something that they want. We really can’t expect a child to fully understand the idea that money is finite and the product of hard work, nor do they get the concept of being able to afford something.
When a child wants something, the only thing that they can see is the enjoyment and satisfaction they [think] they will receive from obtaining the item. They really don’t get the idea that mommy and daddy don’t have enough money to pay for that item, or that the money has been budgeted for a higher priority.
Are we just a bunch of overgrown kids? In this respect I would say, yes! We seem to lack the capacity to deny ourselves something that would destroy us financially – much like a child who doesn’t understand that even though they may desire something very intensely, it has the potential to do them great harm!
What’s the Solution?
Our lifestyle should be constrained by our income. This means that we once we are living on our own, the normal progression is to find a source of income and then figure out what standard of living that income supports!
To do this properly, one must consider not only basic living expenses, but also giving, short and long-term savings, and infrequent purchases (insurance payments, gifts, vacations, etc)! The sum of all of these things should be not exceed the total after-tax income from all sources!
If something comes up to disturb this lovely balance, then you must make adjustments, if you are to maintain control of your finances.
Reader Questions
- Are you currently living above your means?
- If so, why is this the case?
- If not, how are you able to maintain control of your finances?
photo by purpleslog
{ 12 comments… read them below or add one }
Robert Kiyosaki says if you are in debt, you are living beyond your means. I agree with him. It means you have taken out loans for something you want to buy, but cannot pay cash for, and therefore you have leveraged yourself to own a “thing”.
I love the feeling that I personally, “owe no man anything.” When I even try to explain this to friends and family though …. in one ear… out the other.
I don’t even think they understand when you say they think they have a sense of entitlement. They think that is just the way it is done. Want a house? Get a mortgage. Want a car? Get a car note. Noone has ever sat them down and said, “pay cash for what you want.”
People in this country have gotten use to living above their means. We need to step back and look at values and what makes sense for the long haul..
@Jenna, I like that term ($30,000 millionaires)! It seems like we do such a terrible job of figuring out what really is important, and then we just put every secondary thing in that place!
@Financial Samurai, I think it’s enjoyable because people do a great job of ignoring the consequences. But I definitely understand the enjoyment that comes from buying whatever you want, whenever you want. To me, I’d rather be debt free and experience that enjoyment!
@Buck, let’s hope that we can get people to pay attention to what we say!
@Kellen, one of the most fierce enemies to financial discipline is friends and family members who try to push you to live like them!
I’m glad that you and your parents are able to withstand the pressure from other people!
If someone has a tough time with living below their means, I try to get them to see the long-term effects. Show them how much their debt and loose spending will hurt them in a few years, and the shock may get them to do better.
@Carrie, I love the idea of learning from the past! It’s when we don’t learn our lesson and continue on in the same mistakes, that is a sign of trouble!
Living off of one income – or being able to when needed – is the best way to avoid financial disaster for a couple!
@MoneyCone, I wish that it wasn’t an option for any of us!
@twentysomethingmoney, I’m sure that it will be a great feeling to be able to actually save what you don’t spend, rather than just paying off what you borrowed in the past!
I really respect the idea of living minimally while still having fun.
@krantcents, automatic deductions are the best way to hit your saving goals! The age of your cars is quite impressive. We are at 6 and 17 years for our cars. 85% equity is a wonderful number (and this is coming from someone who hates mortgages)!
There are a lot of adult “children” who don’t think of consequences. I guess it’s up to us to spread this healthier mindset of living below our means. We all almost went under because of instant gratification and greed from the Great Recession!
I have a feeling people live beyond their means because it is simply quite enjoyable. And to pay off debt and be debt free is enjoyable, so it’s PERFECT!
1. No, but my friends and I talk about the “$30,000 millionaires” recent college graduates who have a job that is about $30,000 a year and act like millionaires. Pretty amusing actions.
2. N/A
3. Figure out what is important to you and focus on that rather than money. Make sacrifices to make passions happen.
Fortunately, we are living below our means! Our first priority is savings and retirement which is deducted from my paycheck. Our standard of living is moderate and value what is important rather than what is easy. Then we set priorities for the remaining income. I don’t feel deprived at all. My cars are nice but old (16 & 14), my home is nice (85% equity), and travel 1-2 times a year.
Are you currently living above your means?
Nope — under it in terms of everything, and now working to pay off my student loan. After that, I’ll be debt free, with actual monthly savings.
If not, how are you able to maintain control of your finances?
I’ve always spent less than I make — I try to avoid the life of luxury, and live more minimally. Still have fun, but can do it without needing the newest and shinyest things all the time.
Living beyond means was never an option! Any splurge was always followed up by some cutbacks.
No, we’re not living beyond our means.
It hasn’t been easy and there have been bumps along the road and we have screwed up. But it is a learning process. Life experience has made it easier to maintain control of our finances. Several times over the years, my husband has been laid off. There is nothing like that sickening feeling in your stomach when you worry about how you are going to manage. Now we keep our expenses low so we can live on one income if we have to.
I see this a lot. My own parents try hard to avoid this, but other people question why they don’t buy a fancier car or a more expensive house.
A lot of recent graduates my age also seem to think that because their parents provided them with a nice house in a safe neighborhood and a fairly new car to drive, that they should be able to buy all of these things for themsevles, despite the fact that they don’t earn close to what their parents do.
Any thoughts on how to mitigate this problem?