The Problem With Living Below Your Means

Spending less leads to getting less

“I haven’t received your rent”. I was about to go to the grocery store when my landlord walked up to me on my way to my bike. We had been renting this place with my girlfriend for over 4 years and had never paid one single rent late, and I even made sure to pay 1 day in advance every month. Something was amiss here. “Oh no, that’s odd, probably a mess up from my bank, I’m really sorry about that”, I replied. I had an idea of what may have happened.

Every 6 months I had to manually set the recurring payments for security reasons, and for some reason this time, the changes hadn’t gone through and the money was still sitting in my account.

“I think I know what happened, but did you double-check today though?” I inquired. “I’m sure,” she said. Then, she proceeded to open up her banking app and showed me her account in full. I found the situation slightly awkward, but I still took a quick look at her screen, just to not leave her hanging. I didn’t even see where the rent should have shown on the screen. Instead, a much more prominent thing stuck out and left me bewildered: my landlord, who lived in a $800,000 house we were renting the basement of, was a manager in pharma and was just back from vacation in Greece, had less money in her checking account than I did. Way less. I couldn’t believe it.

Eventually, I called my bank and the money went through, and this never happened again. But that’s not the end of the story.

My girlfriend and I moved out of the basement of that house after 5 years, almost 2 years ago. We own a house now, and I often find myself thinking of what our life would have been like if we had done just like our landlords: buy a big house near the capital, get a car, a van for the summer, and a $1,000 barbecue for when the in-laws come over for dinner.

You see, my landlords make a lot of money, but they also spend a lot of money. The only glimpse I’ve had of their personal finances was on that day she showed me her bank account, but I had been curious about their lifestyle for a while. With 3 kids, a huge house, 2 cars, and fancy purchases every month (we would often pick up packages for them when they were away on vacation), they had to be spending at least as much as they were making to maintain that kind of lifestyle.

My girlfriend and I probably make a lot less than these guys, but we also spend a lot less, which we’ll get into later.

Great location, cheap price, great size

You can only get 2 of those when you buy a house (unless you’re very rich). When the time came for us to buy a house, my girlfriend and I went with the latter 2:

Cheap price
Great size

Our location is actually amazing too, it’s just a matter of perspective. We live near the Scandinavian fjords, with the beach 10 minutes away by car and a little creek where you can kayak at the end of our street. In the summer, we take the kayak out of the shed, walk 5 minutes to the water, and go paddle. It’s amazing, but it’s just not super accessible for our family to visit. It’s an hour and a half away from the closest airport, and a 12-hour drive from our parents. Again, it all depends on what you want to prioritize:

A city life where you can grab your latte at Starbucks on your way to work every day.
A country life where you can go on a kayak/bike tour right after your last meeting of the day, with the sun in your face and the wind in your hair.

Most people get the biggest house their money can buy without even thinking twice about the financial burden they will put on themselves. They don’t weigh the pros and cons, they don’t realize that if they go for 90% of the budget the bank gives them, or even 95%, they can save themselves a lot of money per month, an amount that can make a huge difference over a 25-year mortgage.

Living below your means and not always going for the best version of “whatever you want” is one of the biggest drivers of long-term, consistent wealth. From the next-door millionaire looking like your average Joe, driving a beat-up car, to Warren Buffet eating a $5 menu at McDonald’s, great fortunes have been built by people who decided to save more, spend less, and often invest.

What living below your means, means.

My girlfriend and I have always lived below our means, but I’ve come to realize from talking with my colleagues and watching a bunch of content online that for many people, the very definition of “living below your means” is very vague. They don’t even understand what it entails, what a life where you save more and spend less might look like.

For us, living below our means simply means that we save a high percentage of our income every month, and we do so by carefully considering every purchase we make and avoiding spending on things like clothes and expensive things in general.

It’s not that we always go for the cheap version of whatever we want to get, it’s just that we often realize we don’t need to go top of the line to get good quality. We also often take advantage of online sales and buy in bulk, which is an often overlooked way of saving a lot of money.

So, is that all that it’s cracked up to be? Does living below your means only come with pros and no cons? Well, no, it comes with a few downsides.

The way others look at you

The thing when you buy a house below your budget is that you’ll usually end up in a neighborhood where people who maxed out their budget on their house make less money than you or have to spend a lot more of their income to maintain the house and make their mortgage payments. In theory, this shouldn’t be a problem at all, but in the reality of the social construct and how people interact, it gets a little tricky.

If you ever go for a drive through Bel Air (or any nice neighborhood) and take a look at the mansions there, you’ll notice that all the houses are different, but they’re all huge. You don’t know how much people are making in this neighborhood, but you can definitely tell that it’s a lot more than average. In fact, at this point it probably doesn’t matter how much these guys are making, they don’t worry about making more than their neighbor, everybody around here just makes a ton of money and everyone is fine with that.

Now, if you go drive through a more normal neighborhood, like your average residential area, you’ll notice all the houses look a lot more similar and more standardized. Some architects tasked with this development came up with 4 standard variations of one basic house layout for middle-class people who will need a 25-year mortgage to pay it off, and that’s that. If you are yourself an average Joe, the financing aspect of all this will strike you less than when you were driving through Bel Air thinking “Holy crap, how much does one have to make to live here??”

But then imagine that in that residential area for average people, you all of a sudden see a driveway with 2 brand new shiny SUVs, a house much cleaner than the others, a hedge perfectly trimmed. You might think to yourself: “Well, somebody picked the wrong neighborhood.” I would think to myself: “Somebody was smart with their money.”

My girlfriend and I don’t own 2 SUVs, we’re leasing a small family car. Our hedge is not clean-cut and our house is not that tidy. But it is bigger than the other houses in the neighborhood, and we stand out because we both have good-paying jobs in the capital (though we work remotely), and we’re younger than most people in the area.

It’s not that anyone ever came up to us and told us we chose the wrong neighborhood because “we make too much money”, but we can definitely sense that people’s reality and day-to-day life are different from our reality. Again, it’s not a problem for us, but in the way society is built, it is an unusual situation that sometimes creates awkward encounters.

If we lived in a neighborhood where everyone was making the same type of money as we do, nobody would take a second look at our house, but we would be living paycheck to paycheck, and that’s not something we want.

Being too harsh on yourself

I have a problem with buying things I don’t consider to have a direct positive impact on my life: I take way too long to decide to either buy or not buy them. I once spent months considering whether I should buy an iPad or not, before deciding to do so (this was actually one of my worst-ever calculated purchases, because like 90% of people who own an iPad, I ended up using it for absolutely nothing). I’ve also spent 1 month pondering whether or not I should buy a bike, which I did (unlike the iPad, this was an awesome purchase).

Now, this part is not about complaining (boohoo, you have too much money and don’t dare to spend it). Rather, it’s about understanding that for some people with a certain type of personality, the “living below your means” approach can become a bit unhealthy in an obsessive way. Overanalyzing every purchase you have to make is not fun, and often a waste of time. I’m not someone who spends on a whim or buys myself a gift “just because”, and that can lead to serious overthinking. Maybe living below your means is not for everyone…?

I can’t think of anything I want that I can’t get, yet I always postpone purchases, sometimes to the extent that I never end up actually getting the thing. For some stuff, it’s just about being rational and calming down the inner kid in you. Yes, I did want that toy when I was 13 and my parents didn’t get it from me, and I could buy it now, but do I really need this now that I’m 30?

For other purchases, I’m honestly starting to think I should be a little less harsh on myself. I’m an adult now, I make good money, I work for it, so I deserve to treat myself once in a while. This “treat yourself” argument, by the way, is exactly the type of reasoning I despised in my twenties because I was so focused on saving up and building wealth at the time, that I thought spending it in any way was a waste. But with time, I’m starting to realize that you have to release the brakes a little bit and start enjoying life more. This is not to say that enjoyment is always found in consumption, but a little gift once in a while won’t hurt too much, especially if you can budget properly.

At the end of the day, while living below your means is still one of the best ways to grow long-term wealth, it also has a few downsides that are not often mentioned by the people who promote things like the minimalist lifestyle or the FIRE movement (Financial Independence, Retire Early). It’s important to take those into consideration when making financial decisions that will directly impact your day-to-day life, and I hope this article helped you do just that.