The Meaning of 'Living Within Your Means'
by Walter Updegrave
March 12,
2009
Below your means? Within? Regardless of the difference, if you follow these simple steps, you're living a financially responsible life.
Question: I've been having an argument with a co-worker about the difference between living "within your means" and living "below your means." I'm hoping you can settle the issue for us. What do see as the difference between the two terms? —Mark E., Peoria, Illinois
Answer: I think the conversations that you and your co-worker are now having touch on an important issue that many Americans are now having to face after more than a decade of frenzied borrowing and spending—namely, the need to downsize a lifestyle that's proven to be unsustainable.
Whether it was by racking up huge credit-card balances, taking out mortgages with low teaser rates or using a line of credit to tap the equity in a home, many of us were able to bankroll a way of living that was out of line with what we could actually afford based on our earning power.
But the party has come to an end. And many Americans must now deal with the inevitable hangover. For better or worse, some will get government help. Wednesday, for example, president Obama announced a $75 billion plan aimed at helping up to nine million homeowners avoid foreclosure. Many more people will have to make a variety of other painful adjustments to live a more modest lifestyle, if they haven't begun doing so already, voluntarily or not.
So, to put it in your terms, does that mean more of us will have to live "within our means" or "below our means"?
I don't know of any universally accepted definitions for these concepts. But if by "means" we are referring to someone's resources, I think you could plausibly say that someone living below his means is spending less than he can actually afford to spend given what he earns. Which means he is saving some money. Someone who is living within his means, on the other hand, would be spending all he earns, but no more.
But that distinction is too simplistic. I think it's perfectly reasonable that someone might consider regular saving a necessary annual expense. A person who thinks that way could very well see meeting that expense as a natural part of living within his means, not below his means. In other words, for some people living within their means might automatically assume the need to save.
And there are other issues to consider, such as debt. Suppose you cover all your expenses from earnings and you also manage to save regularly, but a large chunk of your budget goes to make the minimum payment on huge credit-card debts you've racked up. Are you living below your means? Within your means? Above your means?
All of which is to say that I don't think I can settle your argument with your co-worker. Terms like within your means, below your means and above your means can mean different things to different people.
What I can do, however, is throw in another phrase, "leading a financially responsible life"—which I would loosely define as arranging your financial affairs so that you have the best shot at creating financial security for you and your family now and in the future—and suggest two actions you should take to lead such a life.
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