What is the Definition of Living Beyond Your Means?

In a recent episode of the Suze Orman show a caller asked Suze for her definition of living beyond your means. Suze responded with the following, “If you have credit card debt of any kind that you cannot afford to pay in full at the end of the month you are NOT living within your means.” Suze clarified the definition by including specific purchases like vacation, clothes, manicures and spa services, which cannot be paid off in full. She also excluded all debt from medical illnesses from the definition.

I would also add food and recurring monthly entertainment expenses to Suze’s list. Expenses such as going out to eat, cable TV, and the latest and greatest cell phones and cell phone plans should not be overlooked. If you are paying off this month’s meal three months from now you are probably living beyond your means. Similarly, if you can’t pay off your grocery bill each month, because you have an unlimited calling plan you are probably living beyond your means.

Investopedia expanded on the definition with the following five signs that you are living beyond your means:

  1. Your credit score is below 600. (Typically low credit scores are caused by having too much outstanding debt, failing to pay your debts on time and having balances that are too close to your credit limit.)
  2. You are saving less than 5%. (“A savings rate below 5% means you could be in real danger of financial ruin if someone in your family were to have a medical emergency, or your family home were to burn to the ground. With savings this low, it likely means you wouldn’t even have the money to pay the necessary insurance deductibles.”)
  3. Your credit card balances are rising. (This matches Suze’s sentiment. If you can’t pay off your credit card balance in full each month than the balance will rise as you pay minimum balances and incur outrageous interest and/or fees.)
  4. More than 28% of your income goes to your house. (“Why is 28% the magic number? Historically, conservative lenders have used the 28% threshold because their experience has told them that this is the rate at which the average person can get by, make their mortgage payments and still enjoy a reasonable standard of living.” The world has certainly seen the repercussions of high housing prices on today’s homeowners.)
  5. Your bills are spiraling out of control. (Small monthly bills like cable, cell phone, Internet and utilities can add up to a large sum of money. In order to pay these bills in full each month you may be putting other expenses like food and groceries on your credit card. If you can’t pay off your credit card each month than you may be living beyond your means.)

What do you think of the definition?

9 thoughts on “What is the Definition of Living Beyond Your Means?”

  1. Rent where I live is so high that at best you are going to spend 40% of your income on rent. And that might not even be in a nice apartment in a nice part of town.

    I believe the 28% thing is a bit out of date.

  2. Whilst the percentages in the definitions can change, there are some basics to the whole thing. In fact, my favourite phrase is:

    “Spend less than you earn.”

    I’ve been doing that a while and now my new phrase is:

    “Spend less, save more.”

    I’m soon gonna change it to:

    “Spend less, save more, earn more.”

  3. I hope you had a wonderful Christmas!

    I had a few years where I did not, but I do now – and did prior to that episode. Well, I guess I’m not entirely sure what my credit score is but am pretty sure that it’s quite good. šŸ™‚

    That chicken curry recipe looks really good. I may try it. I had a friend give me a mushroom curry recipe once but she cooked by instinct so gave me directions like “cut up some mushrooms .. toss in curry .. maybe a pinch of salt .. ” I need something more exact to follow. šŸ™‚

  4. Yup, we live within our means. It’s a lovely feeling.

    However, we are definitely above the 40% for our housing. We live in a high cost-of-living area, and it’s pretty much impossible to keep it at 28%.

  5. I get living above your means is not being able to pay your bills or paying your credit card bills in full. But why use a credit card in the first place?

    I think my definition would be that you don’t use debt for anything and pay everything in cash/debit. Living within your means is not spending more than you make.

  6. Net worth is a good depiction of living above or below your means. If it trends downwards, you are spending more than you are bringing in. If it trends upwards, you are spending less than your income. An even trend indicates living right at your means or paycheck to paycheck.

    My net worth shows that I was living beyond me means during college, but now am spending under my means. The large drop is simply because I didn’t record my car’s value as an asset.


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