Should You Live Below Your Means?
Why expanding your means is the key to a prosperous life
“Live below your means” assumes the solution is to cut your expenses. The solution is to increase and expand your income.
Robert recently wrote on the importance of facts versus opinions when it comes to financial intelligence. Today, I want to write about one financial opinion that is far removed from fact: the common refrain to “live below your means.”
Living below your means is common. It’s the everyday advice the financial “experts” serve up. Instead of just blindly accepting this advice, we should be asking, “Why do they say that?”
Jean Chatzky, well-known financial author and speaker, uses the words, “Live modestly.” When asked why, she said, “Because 41 percent of people in the United States will run out of money during retirement.” It goes back to assuming that people have to save their way to retirement.
Another assumption the “experts” make is that we don’t know how to control our spending. We want instant gratification. In other words, we are spending more than we are bringing in.
Living above your means
A gentleman I know, Kevin, has lived above his means all his life. When he was younger, his income was high. He wined and dined beautiful women, drove the expensive sports cars, and lived near the ocean in Malibu. He lived a lavish lifestyle.
As he got older, he had one problem: His lifestyle continued, but his income did not. Everything he owned was leveraged, or financed, to the hilt. His credit cards were always maxed out. He would ask to borrow money from his friends in order to support his extravagant lifestyle. “It’s just a temporary setback,” he’d tell them.
But it wasn’t temporary. When it came to making money, he always went for the long shot, the big deal, the gamble. He lived well above his means. He just could not admit to himself that he was broke. He lived in an illusion for years. He refused to get a job. That was “beneath him,” in his mind.
Today, his beautiful home has been foreclosed. He, his wife, and three children are basically homeless, living in inexpensive motels and staying with family members. He is 65. What surprises me is that he still insists, “This is just temporary.” Kevin definitely lived above his means.
“Live below your means” assumes the solution is to cut your expenses. “Living above your means” assumes that the money is just around the corner.
I suggest the solution is to increase and expand your income. Anybody can cut expenses. And anybody can hope and pray that money will come in. But it takes creativity, knowledge, and daring to grow your income—to expand your means through financial intelligence.
Robert and I have lived this way for decades. When there are things we want in life, we don’t say, “We can’t afford that.” Nor do we say, “Let’s just get it. The money will come.”
We instead say, “How can we afford that?” It’s a different mindset and an important one. This mindset has helped us to create wealth by purchasing assets that expand our means while also allowing us to enjoy the finer things in life.
Living to expand means
Robert and I lived in a small house with a $400 mortgage for 10 years. Most of our friends during that time had high-paying jobs and were driving the newest Porsches, Mercedes, and BMWs. They were taking the expensive vacations to the trendy hotspots around the world. They lived in the “McMansions.”
Robert and I were not suffering. Our house, small and inexpensive, was in a lovely resort with a water park, shops, and restaurants. The restaurant would deliver room service to our front door on a golf cart. We traveled the world. The difference between our travel and our friends’ travel was that businesses paid us to travel to meet with them. Our friends paid their own way. We had a great lifestyle even though our expenses were low. We did all of this by design.
The money we could have spent on the big house and fancy cars went instead to buying our investments. At first, we invested primarily in rental real estate. Then we expanded our investments across all asset classes. It was definitely a case of delayed gratification. We continued buying investments and living where we were until the day came when the cash flow, or monthly income, from our investments could pay for the big house and fancy cars.
Essentially, we did not live below or above our means—we lived to expand our means.
Today, we still adhere to that strategy. We continue to increase our income and expand our means to create the lifestyle we want for ourselves.
I don’t believe in the live-below-your-means mindset. For many people, including those offering the advice, this is a permanently poor mindset. But even more damaging than the poor mindset is that this advice kills the spirit. It contracts you and makes you small. It makes a person less of who they are, not more. It sentences a person to a life of mediocrity. And if you ever thought that you had to spend the rest of your life living below your means, stop! It’s time to grow bigger, get smarter, and expand not only your means, but expand yourself as an individual as well.