Lifestyle 101: how to live within your means

With the exception of the most extreme cases, everyone is capable of living within their means. I am starting with the presumption that remaining alive and well is the ultimate goal, and that everyone has the means to sustain life and wellness from day to day. Everything else is a matter of lifestyle preference. How we manage those preferences with regards to our available resources determines the relationship we will have to debt.

This is an important point to understand. Debt is not a matter of managing resources, but lifestyle choices. It is not about money. Debt is an option independent of the amount of money one has. The federal government has, what may seem to the consumer, like an unlimited amount of money. But it manages to find itself with trillions of dollars worth of debt. The local 200 member church, which preaches a debt-free lifestyle, itself, carries upwards of $80,000 of debt.

This tells us that it is impossible, or at least, very difficult to live debt-free. Even if one achieves it, it is just as hard to sustain. In that way, it is a little like losing weight.

Good debt

So difficult is it to live debt-free that I am not convinced that it is even a worthy goal. We have a debt-based, spend now pay later economy. Wishing it were otherwise will not make it so. Living in a straw hut will not make the world a better place. It will just make you miserable. Insulating ourselves from debt will not change how the world works. What we need to do is learn how to manage debt responsibly. One of the keys to doing that is to know the difference between good debt and bad debt:

Good debt includes anything you need but can't afford to pay for up front without wiping out cash reserves or liquidating all your investments.

Bad debt includes debt you've taken on for things you don't need and can't afford (that trip to Bora Bora, for instance). The worst form of debt is credit-card debt, since it usually carries the highest interest rates.

Living with debt is a little like living with a Doberman. Properly managed, it is an excellent addition to your family. Poorly managed, and it is a deathtrap. Those who do not manage debt well will inevitably require some form of debt relief down the road. The earlier one recognizes they have a problem with debt, the easier it will be for a debt relief service to get you back on track. Debt relief takes on many forms and is not just about bankruptcy. Even if it goes that far, there are many ways to restructure short of chapter 13.

If you think you might be in over your head, talk to someone right away. Debt problems are not about debt, but bad debt. Knowing the difference can help you make better lifestyle choices.

Emotional purchasing

It is easy to confuse lifestyle choices with necessities. That is because almost everything we buy is an emotional purchase. That goes double for the things we actually need. Everyone needs clothes if for no other reason than the law demands it. But we do not purchase strictly utilitarian clothes at the lowest possible prices. We purchase clothes that we like. Seldom do we buy clothing items because we need them. We buy them because we want them. We buy because of our emotional attachments to styles and brands. When it comes to food, it is also preference that drives our shopping list, not absolute necessity.

Debt happens when emotion runs amuck. If everyone in school is wearing a certain popular brand, we will be on the outside of that group. That probably will not be the life-destroying thing we fear it to be. But it is often the incentive to make us put something on a credit card that we don’t need and can’t afford. Do you really have a solid justification for getting the iPhone over the Moto G which would cost you hundreds less off contract? Living within your means is about making rational decisions about purchases rather than emotional ones.

Living small

Do you need a 2,679 sf house? Do you have more than 2.54 people in your household? I ask because those figures represent the average in the US. If the sf of one’s home represents need, then America is the land of giants. With few exceptions, the rest of the world doesn’t even come close to the amount of space per home, and they share it with more people. The US fetish for massive amounts of living space is obscene, and is a huge driver of debt. Nothing better speaks to our inability to live within our means than a quick tour of the living space we finance on a monthly basis.

By far, our rent or mortgage payment is the biggest single payment we make on a monthly basis. Generally, houses are larger than apartments. If we were much more realistic about the amount of living space we needed, then we might be more open to renting rather than owning our living space. Speaking of which, most of us don’t. Less than a third of Americans own their home free and clear. The rest are in debt up to their eyeballs.

Almost everything about our living space is emotional, from apartment or house, rent or own, one bedroom or four, and other attributes such as overall size, floor plan, and wall color. We spend anywhere from a third to half our income on a living space In which we sleep away a third of our lives. Another third is spent at work or school. Still more time is spent at church, the mall, restaurants, and social events. We spend most of our waking hours somewhere other than the house which defines our budget for the better part of our lives. It doesn't get more emotional than that.

Living within your means is as much an attitude as it is a budgeting plan. You have to do more than asses the amount of money you typically have in your bank account. You also have to be clear about the minimum amount of money you need to finance the lifestyle with which you can be content. I define that as the lifestyle level you would maintain even if you doubled your income. You can test this by asking yourself if you would buy a bigger house or a better car or more expensive clothes if you doubled your current income. When you can answer NO to that question while having enough money to support your lifestyle in a responsible way, then you will be living within your means. Everything else is gravy.

…Pleas pass the gravy.