First Person: How Far Below My Means Should I Live?

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Most people have heard the expressions that a person should live within their means or live below their means. To get ahead financially, I am aware of the fact that we need to bring in more money than we spend. In addition, we need to save and invest the extra money each month. However, I take various factors into consideration when trying to figure out exactly how far below my means I need to live. Some experts recommend living on 70 percent of one's income and saving 30 percent. I save a different percentage every month depending on my circumstances.

Paying extra on the mortgage

I want to live far enough below my means that I can "afford" to pay a little extra on my mortgage every month. In order to pay our mortgage off in another 7 years, I'd have to pay an extra $250 a month toward our mortgage. However, I'm not in that much of a rush to pay it off since we just entered our 40s. As long as I can pay an extra $50 to $250 a month toward our mortgage, I feel as though I'm on track to reach my goals. Even though I could downsize to a tent in my sister's backyard, I don't make the choice to live that far below my means.

Maxing out a retirement account

Some experts suggest maxing out one's retirement accounts. However, I believe I can live below my means without maxing out my 401(k) and Roth IRA accounts. I do think it's smart to pay myself first by having 10 percent of my income taken out of my paycheck and invested into my company-sponsored retirement account. As long as I save 10 percent, I feel as though that's living far enough below my means. I could retire early, but I don't want to have to live so far below my means in order to have that much in retirement.

Building up an emergency account

Many financial gurus recommend having an emergency account that will cover 6 to 8 months of living expenses. I don't think I need to put aside that much money in order to feel safe during an economic downturn. After all, I've already survived the Great Recession. A member of Generation X, I graduated from college when none of my peers could land jobs. As long as I can save $100 a month toward my emergency account, I'm satisfied.

Saving money for short-term goals

At the moment, my husband and I do not have any long-term financial goals other than retirement and to pay off the mortgage. But we do have a lot of short-term financial goals. We want money put aside for vacations, new appliances, continuing education, clothing and entertainment. We don't to dip into our emergency fund for anything other than medical expenses and expenses related to hurricane damage or other unexpected disasters. We save about $200 a month for our short-term financial goals.

Even though a lot of financial experts offer cookie cutter advice for everyone about living below their means, I think everyone has to set their own financial priorities. Sometimes I scrimp and save for several months, while other times I loosen up on my spending. For me, the secret to staying out of debt has been to just always save at least a little more than what I spend. And, I try to devote at least a few months out of the year to a more aggressive savings plan because the future is predictable in that I know I'll always need money to pay for things.

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