How Do I Know I Am Living Within My Means?

Great question! When we have so many competing priorities: rent, bills, retirement, student loans, credit card bills, and day to day discretionary spending, it can be hard to know what “living within your means” actually means. 

On the one hand, the first step in living within your means is to make sure you have all of your bills covered. This involves tallying up everything that needs to be paid each month, including rent, utilities, subscriptions, medica costs, memberships, day care costs, transportation costs, healthcare…anything that is essential to your housing, transportation, and getting to work.

But that is just step one. We also have our variable spending. It can be hard to know exactly what your discretionary spending needs are, and the most effective way to figure it out is to track your spending on these items. These include food, household goods, entertainment (we are social beings after all), and things that fall under the general category of retail. This might be shopping for clothes, make up, gifts, and things that help us pursue our hobbies and interests.

Getting a good, accurate list of what your needs are in these 2 categories, fixed and discretionary spending, is at the heart of figuring out whether you are living within your means, but it isn’t quite that simple.

Most of us have non monthly expenses that pop up, like car insurance, registration, new tires, or we might have quarterly costs like taxes. Then there are the things I like to consider “unplanned but expected.” Parking tickets, for instance. I don’t budget for them because I try like hell not to get them, but alas, they do come my way. Phone screen repair works its way into this category for me, and, note to self, is much more expensive than that case I’ve been procrastinating on buying. A new computer every few years. And of course then there are things like haircuts that we do regularly, if not monthly.

It can be harder to budget for these things than our monthly bills, so we suggest adding up a reasonable list of these kinds of expenses, pricing them out, and then dividing by 12 so you know how much you need to contribute to a slush fund each month so these costs don’t put you over your limits or put you into the red.

Once you’ve got these essentials budgeted for comes one of the categories that we most often see omitted from our tabulations of how much life costs, and that is travel. Since we may not travel every month or even every few months, things like holiday travel to see our families or those girls’ weekends can fall out of sight out of mind until they are upon us, and then those things fall onto our credit card bill. To avoid this, we suggest making a list of your essential travel needs throughout the year and dividing that by 12 to see how much you need to save monthly in your travel fund. If you can afford it, we also recommend buffering this so that you have the freedom to take the occasional vacation, or if travel is your passion, making sure you can sustain it comfortably.

If you’ve gotten all of these things taken care of, you are well on your way to living within your means, but we wouldn’t be Financial Trainers if we didn’t add one more item to the list, and that is savings. If you don’t have a healthy emergency fund, which we define as 3-6 months of your expenses for most people, you need to make saving as non negotiable as paying your rent. Even if you have all of the above in your budget, chances are eventually life is going to happen someday and you’ll need to have some funds set aside.

One of the most important reasons to have an emergency fund is to be sure you can replace your salary if you are unable to work or have a disruption in your work life. After the last year we’ve all seen people who thought that they were in secure jobs, only to find themselves laid off. Emergency funds can also help to pad our savings if we need to leave a toxic job, or can keep us safe and secure if we have a breakup that changes our housing costs dramatically, or if a family member has a crisis and we have to help out. 

Ideally, we recommend saving 10-20% of your gross monthly income for expenses, and we count being able to do this as part of living within your means, at least until you hit that 3-6 month mark. Once this is taken care of, we suggest moving this savings into a retirement fund that can help to make sure you have a comfortable retirement later in life. 

We know that this is a LOT, and we know that not everyone can hit all of these marks from day one of your financial journey. But that is why we create financial roadmaps that include not just your needs today, but also all the things you’ll need to do to make sure future you can be happy and healthy. Creating goal posts for these goals and timeline for achieving them helps you to stay motivated and enjoy the feeling of accomplishment after you meet each month’s or each quarter’s financial targets. 

Helping people live within their means is at the heart of every one of our financial plans. We do it by creating SMART goals, goals that are specific, measurable, achievable, relevant, and adding a timeframe for achieving each one. On the softer side, we try to provide the non-tangible tools that make reaching these goals possible: accountability, support, and cheerleading as you cross each finish line.

How Do I Know I Am Living Within My Means? is written by Terri Bennett, A Certified Financial Trainer for

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