Living Within Your Means | YNAB

What does it mean to live within your means? Living within your means is when you are making more money than you are spending. Creating a monthly budget and sticking to a spending plan can help you get to a point where you have enough money to routinely cover your monthly expenses, financial priorities, and spending habits without going into debt. 

And although learning to live within your means can be challenging, the potential benefits extend far beyond finances. 

Living Within Your Means

It’s the golden rule of personal finance and it seems simple enough. So why aren’t more people doing it? Well, it is a simple concept, but do you know what your “means” actually are?

If the first thought that pops into your head is your yearly salary, you’re on the right track, but that doesn’t tell the whole story. You’ve got to think about the amount of money that actually hits your bank account (after taxes), and what money is tied up in rent, mortgage, car payments, credit card debt, student loan payments, and living expenses. To “live within your means,” you need to have more income than expenditures, or to put it simply, more dollars coming in than are going out.

That seems like easy (and obvious) math, but the reality is you might float along from day to day, not really knowing how much you have to spend, or where it all goes. You might wonder why you don’t have more, but you stop short of doing anything to better understand your financial situation. It may just seem too overwhelming to know where to start.

The good news is that I can show you how to start living within your means, and I’ll explain exactly what you need to do in three actionable steps. But before we get started, I want to lay out two important truths:

1. You can expect a “raise” in pay if you follow these steps. (I’m confident you will get it.)

2. This will take hard work. I’m not going to sugarcoat that part. Improving your financial health takes ongoing focus and commitment.

Money doesn’t have to feel messy. Check out our comprehensive guide on how to simplify finances.

How to Live Within Your Means

Ok, here’s what you need to do to start living within your means:

1. Know How Much Money You Bring In

In order to live within your means, you have to establish your means. How much money do you bring in each month? If your monthly income fluctuates then you might want to check out the article about living paycheck to paycheck, but I’m guessing most of us know just how much we made last year (and we wish it were just a bit more).

Get down to a dollar figure by adding up a month’s worth of paychecks and any other income sources (and only the amounts that actually hit your bank accounts after taxes and other withholdings).

2. Record Your Spending

Establishing your means was the easy part. This is the hard part. I don’t propose that you just kind of estimate, or guess what your expenses were for the last little while, and then decide whether you’re living within your means.

I suggest you look backwards at your check register, bank statements, or credit card statements to get a general idea of where you were at with your spending.

You might have a rough number in mind, but all that’s really important is the future ahead of you. You need a way to track your spending moving forward. That’s the only way to live within your means for the long term.

You see, money management is 90% psychological, and when you record your spending, then you will naturally spend much less (i.e. begin living within your means). Now, I don’t mean “look at the credit card statement once a month” and count that as tracking spending. 

No, I’m talking about something more intentional, more involved. Write it down. Set up a spreadsheet. Or step into the 21st century and use a handy app like YNAB (I’m biased, of course). However you do it, record every transaction. 

Find yourself wondering “Where did my money go?” all too often? Check out our comprehensive guide on this common problem.

How I Gave Myself a Raise

I tried this when I was in high school. I simply wrote down on a lined piece of paper everything I spent for a month and I was shocked at how high the number was. The next month I spent half that amount! And the next month it dropped by another 25%. Oddly enough, I didn’t feel like I was missing out on anything. Naturally, I had much more discretionary income in high school, so such a drop was realistic. However, to see a 20% decrease in your spending once you begin recording all of your purchases is not uncommon. Congratulations on your new raise.

Recording your expenses creates a system of accountability, which helps prevent overspending. As you build this habit of expense tracking, you’ll see where your money goes and you’ll be able to better assess whether or not your spending aligns with your priorities. Do you want to skip the grocery store and splurge on takeout again or would it feel better to build an emergency fund? Is a new car worth the monthly payments or would it stand in the way of saving up for a down payment on your dream home? There’s no wrong answer; you can spend your money how you want, but building awareness around that will improve your financial future. 

Check out Hannah’s tips for saving more and spending less.

3. Find The Right Balance

After not recording what you spend for a few decades, it can be a bit difficult to just start right off the bat. It’s the only way to make this stick though. It’s much like the attempts my wife and I make at limiting our dessert intake. We say we’ll just have one per week, or maybe one per day, or whatever—but that never seems to work. The only time I’ve ever successfully managed to avoid desserts was when I avoided them completely.

It’s the same with recording your expenses. Commit to this. Record all of them. Don’t let one slip through the cracks. Spending a few dollars for a soda probably isn’t going to matter to your pocketbook. It will affect your habit formation though—and that’s where it counts. 

Record your expenses for a month to see if you truly are living within your means. Compare your inflows of cash (from step 1) to your outflows of cash (from step 2). Now you know where you stand and can figure out where you can cut back.

With that information in hand, you can start working toward a lifetime of living within your means by shifting that balance so what you spend is below what you make. Doing that makes it easier to save money, meet your financial goals, and enjoy a greater sense of well-being as you get a taste of financial freedom. It’s better than any dessert, and I don’t say that lightly. 

It might take some time, it will definitely take some work, but you can give yourself a raise if you spend less money and take the steps to live within your means. You may not be able to continue to keep up with the Joneses but the peace of mind that comes with financial independence far outweighs the temporary joy of buying material things.

Ready to start the journey of living within your means? Get more familiar with your income, expenses, habits, and priorities with YNAB’s free Change Your Money Mindset workbook and email series.‍