The Difference Between Living Within Your Means and Below Your Means Is Wealth

The concept of living within your means is a pretty straightforward one, and one that most people I know seem to generally subscribe to. In a nutshell, the idea is that you don't spend more money than you have. If you make $3,000 per month, you spend $3,000 or less each month.

This concept is certainly one that my parents taught me as I grew up. I remember my dad talking to me about credit cards, and not carrying a balance. I understood the concept of a budget, even though I never actually created one until after I was married.

In fact, it wasn't until after I graduated from law school, had a full-time income, and had to pay back student loans that I really started learning about personal finance.

It was around this time that I read The Millionaire Next Door, and it had a huge impact on me. For the first time, I understood what it means to live not just within one's means, but below one's means.

And I learned that the difference between the two practices is what leads to wealth.


Take my previous example of an income of $3,000 per month. If you spend $2,900 per month, you're living within your means. But if you spend only $2,500 per month, you're able to save $500 - and if you build an emergency fund and then invest your monthly savings, you're on the way to building wealth. Reduce your spending to $2,000 per month and you're building wealth twice as fast.

I've been thinking about this concept a lot lately. It's been nearly ten years since I stopped working full-time as an attorney and became a part-time blogger/writer, mostly stay-at-home mom. When I was working, we lived well below our means. In fact, almost all of my income went into savings and toward paying off debt. Now, we still live below our means and continue to save, but not even close to what we used to put aside each month.

And yes, that means I've been thinking about going back to work outside the home, or finding a more lucrative work-at-home job. Because I would very much like us to live more below our means, so we are able to build more wealth (also known, at this point in our lives, as saving for college).

Even if you can't reduce your spending right now, this is a concept that's worth thinking about. When you get a promotion at work, or find a way to lower your expenses, instead of raising your standard of living, maintain expenses at the current level and tuck the increased income into savings. Then you'll be on your way to building wealth.

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