Living Within Your Means

Living within your means summary: 

• Living within your means is when you spend less than what you make. 

• When you live beyond your means, you spend more than your income, which can lead to debt. 

• Making a budget and managing debt could help you live within your means. 

Living within your means definition and meaning

Living within your means is when you spend less than you earn. Someone who lives beyond their means spends more money than they make. They may have debt if they use credit cards or loans to pay for things they can't afford. 

Living within your means is a good thing; it means you're likely to be financially healthy. Your bills are paid, you have a little money to spend, and you probably have some savings as well. Making a budget and prioritizing expenses could help you live within your means. 

Key concept: Spending less than you earn. 

More on living within your means

You want to feel good about your finances and get ahead. And sometimes that means rethinking how you spend the money you bring in. The more you live within your means, the easier it is to save, pay down debt, and build the financial future you dream of. 

What is living within your means? It's pretty simple: You spend less than you earn. It's easy to say, but sometimes hard to do. If you live paycheck-to-paycheck, for example, you'll need a plan to break the cycle.

A budget could help. So could prioritizing your expenses and paying off debt. Every step you take to live within your means puts you a step closer to good financial health. 

Living within your means: a comprehensive breakdown

Living within your means is when you have enough money to cover all your expenses, with some left over. You could use the extra money in your budget to pay down debt if you have any, or build a rainy day fund if you don't. 

To live within your means is to know how much you bring in and how much goes out each month. People who live within their means may:

• Track their expenses each month

• Make a budget and update it regularly

• Save money from paychecks automatically

• Cut out unnecessary expenses

• Live frugally

They're not perfect people—they're just in tune with their money. They may feel more confident about their personal finances and experience less money stress. You could have that, too; it may just take a mindset shift and some new habits.  

Living within your means vs. living beyond your means

Living beyond your means is when you spend more than you make. This situation may happen if you don't stick to a budget or you spend on credit without keeping track of where the money goes. 

That's a problem because credit card debt can balloon if you're not paying attention. You could end up overwhelmed by debt and struggle to pay it off. It's not impossible to turn this kind of situation around, but it does require some work. 

Living beyond your means isn't the same as financial hardship. A hardship situation usually results from something you can't control. For example, you lose your job or your spouse is diagnosed with a serious illness. You may be dealing with reduced income or a pile of medical debt, which isn't your fault. 

Real-life example of living within your means 

What does it look like to live within your means? Here's an example of how you might plan your budget using the 50/30/20 budget method.

Say you bring in $5,000 a month. With the 50/30/20 rule, you'd earmark:

• $2,500 for essential expenses like housing, utilities, and food

• $1,500 for wants, like dinner out or new clothes

• $1,000 for savings and debt

You'd then look at each budget category to figure out how much you need to cover your needs first, then your wants, then savings and debt. When you prioritize expenses, you make sure the essentials are covered first. 

If you have extra money, you can decide what to do with it. Ideally, you don't have any debt. But if you do, you could make an extra payment. Or, you could add some money to your emergency savings.