How To Work Out If You’re Living Beyond Your Means

The phrase ‘living beyond your means’ is thrown around a lot. And while we know it refers to over-indulging, it’s not always clear what that actually means. Officially, it's defined as spending more money than you can afford. But where we often go wrong is in the varied understanding of what it means to afford something in the first place.

A lightbulb moment for me came in the form of something I learned at uni: a lecturer told us that, in business, it was important to grasp the difference between how much money you have and what you can afford. And the sentiment can easily be applied to our personal finances. What it essentially means is that your disposable income — the money left over after expenses — is the only money that should really be considered when looking at spending. So while you may have £600 in your account, that doesn’t mean you can afford £600 shoes — right now, anyway.

Money and spending are personal, and both security and joy look different to all of us. So to gauge how others are doing it, we asked a bunch of women we know to tell us how they split up their take-home pay and what they had left over. When it came to their responses, we noticed a pattern. While the percentages that people allocated to rent, bills and savings varied, almost everyone surveyed actively set aside a portion of their pay for leisure.

But while everyone valued spending money on themselves and didn't want to give it up anytime soon, they also all shared that their current spending models were not sustainable for their long-term goals. The main reason behind these feelings was that they felt that they weren't consistently contributing to their savings. A majority also reported feeling worse about their finances post-pandemic.

It all makes sense given the times we live in. With the pandemic turning our worlds upside down, spending has never been more complicated. On the one hand, many of us have become more lifestyle-focused, wanting to blow our cash on the fun things we didn’t get to indulge in during those years of restrictions. But on the other, it reminds us of how easily things can change, and why it’s important to have emergency savings to fall back on.

Do we need to choose between joy now or joy later? We'd certainly hope not, but it's a tricky balance to strike. When it comes to living within your means, the fact is that it's likely to change month to month, depending on what's going on in our lives. According to Margaret, 27, who typically allocates 40% towards bills and expenses, 30% towards rent, 10% towards her car and splits the rest up between savings, short-term savings and a ‘bougie’ spending account, things like weddings, birthdays and events that come up tend to make trying to stick to a budget feel redundant. 

On the other side, trying to account for our lifestyles can also go awry. Sarah, 31, who likes to get granular with her monthly spending allocations, admitted that sometimes the format works against her. "The problem with having a separate shopping account that I feed money into every month is that all the money I put in there feels like it needs to go to that," she tells us. "So even if there’s nothing I really want, I end up going shopping and draining the funds in there just because that’s technically what it’s there for, when, really, I could’ve just held off and moved it into savings."

If you ask us, living within your means is all about trying to marry up your current needs with your future goals, and finding a balance for spending that doesn't see you on a diet of two-minute noodles for the last week before payday (or when you retire). A tell-tale sign that you're living beyond your means is if you're not contributing anything to your savings or paying off debts. It's fair enough that we go through lulls of not raking it in, particularly when starting out in a new career, but if you know that you're on a comfortable salary and still not making a dent towards repayments, then it might be time to swap to reevaluate your spending.

According to readers, the average percentages of take-home pay shelled out for expenses were around 40% for rent/mortgage repayments, 20% for long-term savings, 20% for leisure and 10% for emergencies.

If you're like us, though, and generally prefer low-maintenance budgeting, the 50/20/30 method is a good place to start. This is an easy, popular budgeting method where 50% of your salary is allocated to essentials (rent, utilities and other non-negotiable expenses), 20% to savings, and 30% to non-essential spending. And if you find yourself consistently going over these budgets, well, it's likely that you're in fact living beyond your means.

No budget is perfect, and things come up that will always throw a spanner in the works. No amount of planning can really avoid these obstacles, but the key to making sure you’re setting yourself up right for the future isn’t in denying yourself completely, but by being realistic about your money and whether it makes sense with your current spending.