A common topic in the personal finance world surrounds living within your means. But is it really important to live within your means? And what are the main benefits and drawbacks in doing so.
Rent – the Great Bambino
When I think about living within your means rent is the main showstopper. If your rent is equal to your monthly paycheck then it is mathematically impossible for you to save money. So it makes sense to look at your expected income next year, and make your rent a certain percentage below that. (Ideally only 15-20%).
Why not earn to spend?
This may not sound too bad while you’re young, but if you think about it simply, at this rate you’ll need to work for the rest of your life. It may sound tough to hear, but a lot of life is about risk and money. So if you plan to enjoy your young years traveling that’s totally fine and many have those dreams of being free and young and traveling the world, but at some point we’ve got to face the facts. At an old age it becomes much more difficult to work as hard as when you were young, so money does become important. This is not made out to sound negative at all, and everything is not amount money, but it helps to work hard and save while you are young, so that you can relax more when you are older. (This is best advice my grandfather has ever given me.)
The city / town you live in matters
This point is obvious, but needs to be said because it’s truly important. Living in New York City or San Francisco is great, but also very expensive, so if your income is lower than comfortable for living expenses in New York then it may make sense to commute or work in a lower cost city like Boston, Chicago, or Miami.
Create – don’t process
The last point here can be seen as a result of living below your means. As you are able to do so longer and longer, you will feel more free and will be able to focus on your hobbies and hopefully create something of value, that you can share with the world. What does mean? It means building a company out of your hobby!!
If you are a a great chef, then start your own restaurant. Most of us read that and are scared! However if you have some savings you’ll feel relaxed doing this (or at least more relaxed!) After, you do only live once, so once you feel financially secure, you should go chase your dreams eventually.
We hope this post has convinced at least a few of you that it pays long term to live below your before your income levels increase. It seems that in todays world of iPhones and private jets, that everyone wants to live “the life” right away, but it pays to wait until you can do so permanently.
