How to Live Within Your Means: 6 Tips for Saving

This article is an excerpt from the Shortform book guide to "The Wealthy Barber" by David Chilton. Shortform has the world's best summaries and analyses of books you should be reading.

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Do you spend more than you make? How much credit card debt do you carry? Do you have an emergency fund?

A great way to save money is to live within your means. David Chilton, the author of The Wealthy Barber, says that living within your means doesn’t have to mean careful budgeting. If you implement big-picture financial planning, day-to-day spending choices like whether you buy coffee or order take-out don’t matter too much.

Keep reading for advice on how to live within your means.

Living Within Your Means

While Chilton says that you don’t have to pay attention to every cent, there are some steps you can take to help you live within your means. Here’s his advice on how to live within your means.

Tip #1: Save Up to Buy Big-Ticket Items

Don’t borrow excessively to buy big-ticket items like cars or expensive products. Instead, save up until you can afford them. The best way to do this is by taking a certain amount off the top of your paycheck every pay period and investing it in guaranteed products like CDs. You don’t want to invest it in riskier products like stocks because you know you’ll need it relatively soon and can’t afford to lose it.

(Shortform note: When it comes to cars, some personal finance books go beyond this advice and tell you specifically which vehicles to buy: used cars. In The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko indicate that wealthy people usually buy cars that are two or three years old because they understand that new cars are overpriced. In fact, most car buyers spend 30% of their net worth on a car, whereas millionaires spend only 1%.

Tip #2: “A Dollar Saved Is Two Dollars Earned”

It’s better to save money when making purchases than it is to earn the same amount in income because your income is subject to taxes and deductions. As Chilton puts it, “a dollar saved is two dollars earned.”

For example, if you save $300 by buying an item on sale, it’s the same as if you had earned a $600 bonus. It’s not worth killing yourself at work to make more money when you could do better to shop around for the best price before buying expensive items.

(Shortform note: Other personal finance books agree with this approach. For example, in The Millionaire Next Door, Stanley and Danko claim that high-wealth individuals are often frugal and bargain-conscious, buying items on discount or at factory outlets.) 

Tip #3: Don’t Carry Credit Card Debt

It’s never a good idea to carry credit card debt. The interest rate on credit card debt is much higher than it is for standard consumer loans. If you can’t pay off your credit card balance, borrow from the bank—the interest rate will be much lower on the bank loan.

In fact, Chilton advises against using credit cards at all, as they make it too easy to spend money you don’t have.

(Shortform note: Like Chilton, many authors advise against using credit cards, as well as counseling more generally against buying things you want, but don’t need (which credit cards facilitate). In Your Money or Your Life, Vicki Robin and Joe Dominguez explain that the marketing industry was born when factories in the early 20th century were producing more goods than ever before, and companies needed a way to convince people to buy things they didn’t need. They argue that this culture of over-consumption not only causes people to live beyond their means, it also depletes the planet of finite resources and accelerates climate change.)     

Tip #4: Understand Your Spending

Although it’s not necessary to budget meticulously, Chilton says it’s helpful to write down your monthly expenses periodically to see where your money’s going. That way, you’re not spending too much on the wrong thing, and you can make any adjustments that seem warranted.

(Shortform note: Many other personal finance books do recommend careful budgeting, including The Barefoot Investor, The Total Money Makeover, and The Millionaire Next Door. The latter states that more than half of all millionaires create monthly and annual budgets, and 62% of millionaires know their annual expenses for basic needs.) 

Tip #5: Keep a Modest Emergency Fund

Chilton says that, contrary to some advice, you don’t need four to six months of income in an emergency fund, but it is a good idea to keep some money on hand for emergencies. This is especially true if you’re a homeowner—you never know when unforeseen expenses might crop up.

He says keeping too much in an emergency fund is a waste because you could be investing that money or using it to pay down debt rather than being taxed on it and earning low rates of return. Only people with unpredictable income or little job security should keep more than a modest amount in an emergency fund.

(Shortform note: As Chilton notes, other authors recommend a much larger emergency fund. In The Total Money Makeover, for example, Dave Ramsey says you need a fund big enough to cover three to six months of expenses, to protect you in the event of a job loss or medical bills.)  

Tip #6: Use Excess Cash Wisely

If you have excess cash (for example, from an inheritance), Chilton says the best investment decision you can make is to pay off any debt with non-deductible interest, such as car loans and credit-card balances. Make sure you always pay off the debt with the highest interest rate first.

If you have excess cash and you have no debt (and you’re implementing Chilton’s other financial principles), spend your money!

(Shortform note: Chilton advises paying off debt with excess cash; other personal finance books recommend that you pay off debt first, before you do anything else. In The Barefoot Investor, for example, Scott Pape recommends eliminating debt by taking steps such as listing all of your debts, renegotiating your interest rates, and paying off your debts one at a time, starting with the smallest.)

How to Live Within Your Means: 6 Tips for Saving

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  • A guide to becoming financially successful by following simple principles
  • Why you might not need to buy life insurance
  • Why you should only buy a house if it’s right for you

Elizabeth Whitworth

Elizabeth has a lifelong love of books. She devours nonfiction, especially in the areas of history, theology, science, and philosophy. A switch to audio books has kindled her enjoyment of well-narrated fiction, particularly Victorian and early 20th-century works. She appreciates idea-driven books—and a classic murder mystery now and then. Elizabeth has a blog and is writing a creative nonfiction book about the beginning and the end of suffering.

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