Adam Elder is a writer in San Diego. He's also written for Esquire and WIRED magazines, VICE, The New York Times, The Wall Street Journal, The Guardian, newyorker.com and elsewhere.
Living within your means: It’s supposedly a virtue. Yet nowadays, there’s so many things to spend money on and a million ways to pay. Taking on debt is so common because it’s astonishingly easy to do. But what does it really mean to live beyond your means? Is it a matter of spending more than you earn? Or is it buying the wrong stuff? How can you learn how to stick to a budget? Alongside Brian Walsh, a certified financial planner at SoFi, a personal finance company, we splurged on some answers.
So what does it mean to live beyond your means?
“At a high level, it’s spending more money than you bring in on a monthly basis,” Walsh says. He admits that, that sounds super simple, but the reasons people do it are a bit more complex — and our complex economy and payment systems get in the way of people’s ability to spend less than they earn. But everyone knows you shouldn’t spend more money than you earn, and obviously it makes no sense to buy things with money you don’t have.
If it’s so goddamn obvious, then why do so many of us still do it?
The first part has a lot to do with credit cards. Walsh points out that numerous studies have shown that when people purchase the exact same item with a credit card and with cash, subconsciously, they’re willing to pay more for the item when they use a card than they will with cash.
Then the second part: Walsh points to the fact that people now have different credit cards, digital payments set up for every account, automatic withdrawals, Venmo and other methods of payment. It’s hard to stay on top of all that! Imagine as recently as a few decades ago, when people just had checking accounts: Write a check, write the amount in your ledger, do some simple subtraction, and you knew how much money you had in your account at all times. Now? It’s not so easy. While almost everything is more convenient to pay for nowadays than it used to be when you had to scribble all that info on every single check, it’s way harder to keep track of.
How do you keep track of it, then? How do you know how to stick to a budget?
Walsh recommends setting up various systems — what works best for you, only you know. For the personality type who’s more detailed and wants to get their hands dirty in their finances, it’s best to actually keep a budget and track what they’re spending money on and what they’re bringing in on a monthly basis.
Yeah… that’s not me.
Not into the budgeting thing? That’s fine — even Walsh himself is more of a hands-off guy. Here’s what he recommends: Automate the important stuff as much as possible. If you know you should be saving a certain amount of money every month for your investment account or your retirement goal, or if you know you should be paying an extra few hundred each month in order to pay off your credit card, set them up as automatic transfers! If you do things like that, you’ll finally be putting your money toward the things you know you should be spending on, and it’ll be auto-freaking-matic. (Dusts hands off.)
Sounds great, but that won’t auto-freaking-matically control my spending.
You’re right, so let’s reframe this. What’s the very first thing you can do to rein in overspending and living beyond your means? “As cheesy as it sounds, the first thing to do is admit you have a problem,” Walsh says, “and understand why it’s important to fix it.” Because if people start with the “how” and skip the “why,” spending less can be effective for a week or two, but it’s not sustainable, he says.
So first start by admitting you live beyond your means. That sucks, but it also kind of feels good to acknowledge, right? It’s out there, and now you can solve it. Then the next thing to do is understand two things: What’s your income, and where exactly are you spending your money? As you go through your expenses, you should be able to break them into categories: Essential expenses, discretionary/nice-to-have stuff and waste. This allows you to prioritize all your spending, and this categorization will make it mentally easier for you to quit spending on the stuff you shouldn’t be buying. It’ll make the hard decisions a bit easier.
Again, if you’re the type who feels overwhelmed by making a budget, you don’t need to do all that. At a bare minimum, just set a spending target — pick a number you can’t exceed for the month — and track your spending as you get close to it. There are plenty of apps out there (Walsh mentions SoFi’s own) that do all the tracking. They can connect to your accounts and let you know where you stand at any time.
That sounds simple.
It’s about as simple as you can make a complicated situation. As Walsh points out, mobile payments, credit cards and all the different methods of paying money are a blessing and a curse. They’re a blessing for making our lives easier, but they can be a curse because people tend to spend more money when they use these things, and it’s harder to keep it all straight.
So the key to living within your means? The answer is simple: Spend less than you earn. Problem is, that’s so much easier said than done.