The best advice I ever got was from my parents who taught me at a very young age to live below my means. My parents were consistent savers so saving money was a way of life for me as long as I can remember. My parents took it to the extreme sometimes and were super cheap. On special occasions we would go to Burger King on Sundays because they would have $.99 cents Whoppers. We would get the burgers but then come home and make our own fries or have chips!
I have carried this “frugalness” into adulthood and have always tried to be prudent with my finances. My Dad told me to save my raises whenever I got them at work. This helped me avoid lifestyle inflation which I’ve seen from so many of my coworkers over the years. When I was working my first job out of business school my VP at the time came to my apartment to play Madden. He took one look at my apartment and furniture and said “Why are you living like this? I know how much we are paying you.” Ha ha! What he didn’t know was that I was aggressively paying down my student debt which I was able to pay off within my first year of graduating.
I have always tried to avoid what academics refer to as the “marginal propensity to consume” or MPC. This is defined as is defined as the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it.In laymen’s terms this is simply the more you make the more you spend. I see this all the time. Someone gets a raise and gets a new car or a house with a massive mortgage payment. So spend less money than you bring in. It really is that simple. And avoid consume debt i.e. credit card balances like the plague. Do everything in your power to pay them off each month.
I’ve been taking my lunch to work since I started my career. I’d rather save the money and invest it then spend +$10 a day. Living below my means has allowed me to do the following:
- Payoff my cars
- Payoff mortgage on my house
- Purchase 5 rental properties over the years with no mortgage
- Quit a job I absolutely hated
- Take risk!
- Build a nest egg for my family
When we purchased our home recently I could have easily spent much more but I didn’t want the burden of all that debt hanging over my head. I felt like every dollar I owed was just chaining me to my desk at work that much longer. That was a non-starter for me.
This doesn’t mean that I don’t splurge on occasion. Our family loves going on vacation so we go all out on our trips with our favorite destination being Turks & Caicos. I also have a passion for video games so I never deprive myself of the latest game. I’m in my mid-forties and I’ve never had a house with a nice bathroom. I want one but so far I haven’t been able to justify the expense.
So try living below your means! Don’t try to keep up with “The Joneses” and compare yourself with other people. You never know what is going on behind the scenes. You may find that you sleep easier at night.
You may not have the fanciest car or house but who needs the extra stress? Good luck and let me know your thoughts on living below your means below in the comments.
