When I was a kid I loved playing at my grandma’s house. My grandparents lived, and still live, in a mid-size house they bought back in 1979 for under $100,000 when my dad and uncle were still tots. Growing up you really don’t have a sense of people’s money but as I got older I came to realize my grandparents had a lot more of it than other people, and I began to wonder why they chose to live in that same modest house in a tiny town.
What my grandparents were doing was living under their means and that really is the simplest money hack that exists. Because they spent their money reasonably and never got into debt they couldn’t afford, they always had money for surprise expenses like car repairs. They had the money to send their sons to college and they never worried about whether the mortgage would be paid.
It’s a simple idea that as people get money, they get more stuff. It happens almost imperceptibly. Suddenly when your income is higher you can’t live without those $200 shoes or it seems reasonable to eat out a few extra nights a week. Adjusting your lifestyle to your income is something that we all do. Im guilty of this as much as I try not to be. But if you can learn to live with less I’m telling you It’s the best gift you could give your future self.
Now, let me be clear living under your means is simple but it ain’t easy. Every time I see that paycheck go into my account on Thursday I think about how much of that money is going straight to savings and suddenly I just want a car. When I go to transfer the next $2,000 to savings I just really need a new computer. Living under your means is really about not employing all of your dollars. What I mean by that is, when It’s time to buy something you choose the cheaper option. For example, when I moved last March I chose humility over independence. I moved in with my parents instead of getting the one bedroom apartment that I could pay for. I wasn’t willing to see $1,000 a month melt away when I had free lodging at my disposal. Living with your parents is really unsexy when you’re dating casually but truly it has the biggest effect on my future.
There are other things we spend our money on that you might not even think of as extravagant. Ive written before about the fact that I buy all my clothes at thrift stores and always have. I haven’t been willing to see my money wasted on a $50 sweatshirt or a $100 pair of jeans. Last week my economics teacher was lecturing about superior and inferior goods. When people have less money they move to cheaper alternatives and vice versa. He used the example that when he lost his job in the 80s he and his wife had to shop at DUN DUN DUN…the thrift store! What a sacrifice that was to him, having to shop amongst the poor people. Thrift stores are just a way of life for me. I go through my clothes every six months or so, bring them to the donation center, and buy a whole new wardrobe for under $100.
Something I see so often with people is they don’t know where their money is going. Every month the paycheck gets all used up…it looked like so much money at first…where the heck am I spending $3,000? The answer is your money is tied up. When you live equal to your means or above your means your dollars are going to bills like that nice car or that much bigger apartment than you really need and you don’t have room to spend money on the fun stuff. Living under one’s means allows for so many new money possibilities. That $400 I’m not spending on a car payment I use to go on a little vacation every month. The money that’s not being spent on rent goes into my retirement accounts.
Next time you get the chance to make a big money decision choose the cheaper option! Get the $50 hotel room in Vegas rather than the $250 room. You aren’t going to spend much time in the room and who needs all those pillows? Do I really need the foot long at Subway or could I do with the 6 inch and maybe eat a protein bar I bought for $.50 instead. It sounds silly to think about saving money on such tiny transactions but that really is the crux of it. Behavioral economics says that you would go to a different coffee shop if they raised the price of your latte to $10 instead of $5, but that you wouldn’t care that much if your new car cost $20,500 instead of $20,000. We don’t always behave as rationally as we think we do. I advise everyone to start applying this money hack to your lives today!