Based in Los Angeles, The Money Smiths is a blog comprised of thoughts related to personal finances, real estate investing, and musings on early retirement.

The Subtle Art of Not Living Above Your Means

The Subtle Art of Not Living Above Your Means

Well, it happened - Just yesterday, Mrs Money Smith and I signed a new lease. We've only lived in our current apartment for one year, but realized it was time to move. You might remember from my last net worth update that we were going to have an increased cost to our rent, which prompted me to start looking at the not-so-nice parts of my apartment and wondering what else I could get.

We threw around a lot of different ideas, should we downsize from our two bedroom, two bathroom condo and see if we could fit into a one bedroom? Could we see ourselves living in a condo that didn’t have the nice amenities that we’ve grown accustomed to? Should we go to the extreme and live in our car to save money?? Alright, that last option never came up, I’m pretty sure Mrs Money Smith would file for divorce pretty quickly if I told her that we were going to live in our car even though we can afford an apartment.

The good news is that since coming out to Los Angeles from the Boston area, we’ve been able to increase our incomes pretty significantly, (you need to do that when the cost of living in Los Angeles is so high!), so we were able to move into a nice apartment when we first relocated. Though this apartment was near the top of the budget we originally set, we learned to love our home and enjoyed having a space that was nice to live in and entertain our friends. That’s not to say that this apartment doesn’t have parts we don’t like, (is that a triple negative I just used?), for instance - being near the top of our budget meant that when our property manager decided to raise the rent, that put even more pressure on the savings and debt pay down that we’ve been hyper-focused on lately. There’s also the unfortunate reality that there’s a small child who lives above us that seems to want to stomp on the floor from 6am to 10pm every day! We also aren’t excited about the capabilities of our property manager in fixing issues that come up.

Needless to say, we weren’t living somewhere that we would consider perfect, so why not exercise the rights that a free-market allows, and look for something else! So, Mrs Money Smith and I talked, and we agreed that if we moved, we just needed to keep the same amenities and luxuries that we’ve grown accustomed to with our current residence, and we should focus on finding a deal that would allow us to simultaneously decrease out outflow each month.

Well, long story short - I was able to find an apartment that’s just slightly bigger, and nicer that ours, for $300 less per month! That comes to a savings of $3,600 per year that we can now focus on sending to our bills and savings for our next property. Which brings me to the main point of this post, which is that the Money Smiths actively focus on living below their means. This is essential to have any flexibility in life, as far as I can see. Having flexibility to do things, even just changing apartments, can actually get pretty expensive!

Having leftover money each month is the goal

If we look at our short term costs, just from this move, we needed to pay the property manager of our new apartment almost $6,000 just to move in, (prorated first month, second month, and security deposit). We also needed to hire a moving company, because Mrs Money Smith is allergic to moving our furniture herself, there’s another $500 out the door. Tack on to that, the moving supplies that we had to pick up, boxes, packing tape, bubble wrap, etc, and we’re looking at almost $7,000 just to move to an apartment down the street! If we didn’t live below our means, we would be in a serious pickle if we needed to come up with that money.

Luckily for us, we’re able to cash-flow positively a few thousand dollars per month, and since we knew we were planning a move, we just stopped paying extra on our bills this month and were able to come up with the funds we needed. According to an article on Bankrate, (Jan 2018), only 39% of American’s can cover a $1,000 emergency by paying for those costs from their savings. What’s worse, is that 17% of those polled would actually need to borrow that money from friend or family or take out a loan. These numbers are staggering to me, as I’m obviously obsessive about money, but they show that American’s as a whole need a healthy dose of financial education!

Used from

Used from

How do I live below my means?

Well, for some people it’s simpler than others. Take my family for example, we’re lucky enough to be blessed with two high incomes that allows us to save our money, but there are certainly people who make more than us and still don’t save. Why is that, you ask? The main reason is what some people call lifestyle creep. This is when someone tends to spend more money, as they get more money. The classic example is said well by one of my very good friends back on the East Coast. He says that he likes to live his life at or just above his means, which he says in a half joking, half serious tone.

“When I get a 3% raise, that means I can now go spend 4% more!”

The trick is to look at your spending and figure out a budget. The scope of this post isn’t to go over the ways to make a budget, or even how to budget, but I think that even having a general idea of how much you’re spending, and on what will significantly increase your likelihood of being able to spend less than you earn. I’m willing to wager that there are likely items that you spend your money on that you really don’t need at that point in time. For instance, I’m a total sucker for having the latest and greatest technology, so I can very quickly rack up some serious spending on a new PC, or the latest smartphone if I don’t watch myself. For others it could just be a series of smaller items, like eating out at fancy restaurants, or even just buying a couple fancy coffees from Starbucks every day.

Once you’ve figured out where your money is going, you need to focus specifically on that event. When you’re focused on that event, you need to ask yourself “do I really need this?”, and hopefully you’ll have the willpower to say no. This doesn’t mean that you need to give up what you love and go cold-turkey, but maybe you just start to dial it back a few notches.

After you’re able to successfully pull away from what you’re about to spend money on, you need to actually save that money. This is the most important step! If you decide that you won’t buy something one day, but then just buy it the next, you’re no better off. The way that I like to save my money is by sending it to my savings account. I have a savings account that isn’t even tied to my main checking account, and when I successfully tell myself that I really don’t need something, I’ve actually been able to train myself to send that money to savings, or even just to another bill that I owe. What this does is it actually releases the same effect in your brain as buying the original item would have done, (at least for me).

I still get the satisfaction of spending my money, but instead of getting a new toy for that money, I get closer to not having to pay a particular bill anymore, or I get to see the numbers in my savings account increase. This is a really hard thing to do, and I know that, which is why I definitely wouldn’t recommend trying to completely change your lifestyle over night. But if you’re able to even just avoid buying that fancy coffee a few times in a month, and send that to savings, you might be surprised at how much you can save.

Example time!

Let’s say that coffee is $5 and your first month you can avoid buying it once a week, that’s an extra $20 in your savings. That might not be a lot to some of my readers, but that might be a surprising first step for others. Then let’s say once you realize it’s working and you have the willpower to keep going, you are able to avoid two coffees per week, so end of month 2 you’re at $60 in savings, ($20 from month 1, $40 from month 2). Now, let’s go to what some coffee drinkers might consider an extreme, but let’s say that you only end up buying that coffee once a week, and the other 4 days each week you make a pot at home, now you’re saving $80 per month. If you were to save that $80/month for 13 months, just over a year, you would hit that $1,000 in savings mark that only 39% of American’s can actually achieve.

Now the real world:

Let’s circle back to the current situation for the Money Smiths. We’ve successfully been able to decrease our rental costs by $300 per month. I’ve already increased the automatic bill pay for our highest interest loan by $300 per month. The sad news is that we won’t get to realize that extra $300 directly into our pockets, but the good news is that we’ll get to pay off that bill so much faster than we would have if we had maintained the status quo. As a bonus, we actually get to live in a much nicer apartment as well!

One last example for you, recently in my last net worth update, I set the goal to pay off one of our student loans. Well, by focusing on that thought, we went ahead and sent in the final payment! There was a slight sigh of relief to have killed another debt of ours, but more importantly we did the same as with our rent and we added what we were already paying to that loan, to the next one.

This is something that everyone can do, and I encourage the 61% of you that read this and don’t have $1,000 in savings, to make that your first goal. I’m also curious if anyone has any real world examples of how they’ve been able to train themselves not to spend all their money that are different than what I discussed above. Let me know down in the comments, or reach out to me on the contact page.

Net Worth Update #3: September 2018

Net Worth Update #3: September 2018

Go Read a Book

Go Read a Book