What's Your Financial Philosophy? What It Means To Live Below Your Means


We all want to try to live below our means, but we all approach this goal from various directions. There are pretty much just three basic ways to do it: cut costs, increase your income or do a bit of both.

There are some terms that are bandied around that describe these strategies:

You can either be a frugalist -- someone who is generally thrifty and who strives to keep costs low. Your goal is to keep a lid on spending and to keep a careful watch on outgo.

Or you can be a capitalist -- someone who focuses on income generation and making money. You work on ways to raise your earnings and emphasize the income portion of your balance sheet.

Most people I know are a little of both, although I believe that people are predisposed towards a particular philosophy when it comes to trying to save money.  There's a term coined to describe someone who takes the hybrid approach: it's called being a frugal capitalist.  I'd certainly describe myself this way, although I admit that I do gravitate towards spending more of my waking moments pondering over wealth building strategies rather than deliberating what it is I can do to shrink my budget.

As we discuss these financial orientations, I thought to share with you some additional truisms that I've personally found interesting.

Do You Live Below Your Means or Earn More Than You Spend?

When you live below your means, I've taken it to mean as "spending less than you earn". This implies that you're trying to cap your spending and assuming a ceiling on your earnings. This perspective begins with establishing how much we earn then working to make our spending fit those parameters.

To spend less than we earn, we concentrate on strategies that help us to stop overspending, to get rid of debt and to curb our shopping habits. We fuss over our budget, wrestle with personal budget software and become adept bargain hunters. We basically spend our time working around our money limitations.

I actually prefer to think about saving money a little differently. If you think about it, spending less than you earn actually has a flip-side: "earn more than you spend". I like the phrasing here a lot more, since it places emphasis on "earnings", and removes any insinuation of financial limits.  At the same time, some people may feel that such a statement may also have an underlying consumerist bent, with the idea of "earning more" having the connotation of profligacy.  To some, it may suggest that having higher income could also imply higher spending. 

I don't think of it this way -- I've decided to subscribe to the "earn more" philosophy because I find it generally more inspiring.  When you think of your professional and financial future, wouldn't you prefer to imagine that "sky's the limit"? 

What's Your Financial Philosophy?

We only have so much time to spend in the day thinking about how to take care of our finances. I've found that with that time, I've always preferred to focus on those ideas that give me the inside scoop on how to become a millionaire, how to build wealth, increase income, and invest to grow my net worth -- all topics that mainly fall in the realm of the capitalist. Others may feel more comfortable and more empowered by walking the path of a pure frugalist. 

Either way, I think that to some extent, this is just mincing words. What's important is that we do what we're most comfortable doing when it comes to our money. When we enjoy how we handle our finances, it increases our chances of achieving our goals and reaching financial success and independence one day.


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Guest's picture

As an ex-Philosophy major, I'm a firm believer in the "living below your means" option for the simple reason that living below your means is a skill that you learn and keep with you forever, while the "making money" option may come and go. We all know that leading that ideal life is about "lifestyle" and not "money."

I've written on the subject at:

What money can buy: http://www.scordo.com/blog/2009/01/what-money-can-buy.html

Immigrants and money:http://www.scordo.com/blog/2008/10/what-you-can-learn-from-immigr.html

Leading a balanced life, like Buffet: http://www.scordo.com/blog/2008/12/how-to-lead-a-balanced-life-or.html

Vince Scordo

Philip Brewer's picture

I've gradually come to the notion that one should do this the other way around:  First, chose a lifestyle that affords you with abundant pleasure and satisfaction.  Then, choose a career that will support that lifestyle (with a bit left over).  But, be sure to remember during the first step that an expensive lifestyle enormously narrows down your career choices.

If you need a big house or a fancy car or the latest gadgets--if you need lots of "stuff" in any form--then you'll be limited to careers that pay lots of money.  But, if you can buy everything you need for a modest amount of money, then you're free to choose whatever career seems most interesting to you.

The whole concept of living within your means presupposes that your finances are the limiting factor.  If you're extremely poor, that's probably true.  For the rest of us, though, I think you start hitting other limits long before you hit the financial ones--if only you pay enough attention to what expenses give you the most joy (and start avoiding the ones that give you less).

Guest's picture

I was about 36 or 37 when I came to the same realization. After much effort, things began to fall in place and I am finally on the path I wished for. The key was getting out of my own way, as I was/am my own worst enemy. At least 99% of my problems were self inflicted...

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