How to Stop Living Above Your Means

This article is an excerpt from the Shortform book guide to "Unscripted" by MJ DeMarco. Shortform has the world's best summaries and analyses of books you should be reading.

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Do you have trouble saving money? Do you tend to spend more than you earn? How does living above your means hinder your financial prospects?

In this day and age of conspicuous consumption, it has become the norm to live above your means. While it could be fun for a while, it damages your long-term financial prospects by driving you further and further into debt.

Here’s how to stop living above your means.

Spending More Than You Earn

The idea that living above your means is okay implies you can rely on credit to buy things you can’t afford without suffering any consequences. DeMarco claims that this belief underpins a consumer mindset—because it disregards the persistence required to create wealth in favor of the quick fix of using credit to impersonate wealth. However, relying on credit results in debts that destroy your chances of creating actual wealth—because instead of funneling money toward your financial security (a business, investments, and savings), you must commit all future income toward paying off your loans.

(Shortform note: It’s well known that relying on credit creates debts that restrict financial freedom. However, DeMarco’s conclusion that people rely on credit because they’d rather appear rich than put in the work to be rich is arguably reductive because many people can’t survive without credit. According to one survey, 37% of low-income and middle-income households rely on credit cards to cover basic living expenses, such as groceries and utilities. Further, people who rely on credit tend to work longer hours or take on a second job just to cover their debts and survive. So, while DeMarco argues that credit users are motivated by the need to look wealthy, many credit users are in fact motivated by the need to survive.)

Think Like a Producer

Overcome this belief and cultivate an entrepreneurial mindset by thinking like a producer. This involves examining everything you purchase from a producer’s perspective rather than a consumer’s perspective. Ask yourself, “What value does this company provide and how does it market the product? What processes are involved in offering this product or service? How does this company make a profit?” DeMarco claims that these questions will help you make the switch from thinking about what you want to buy to thinking about what you can produce to generate profits. 

Nine Questions to Uncover How a Business Operates

Osterwalder and Pigneur (Business Model Generation) offer a more in-depth way to analyze the strategies of successful businesses and “think like a producer.” According to them, every business strategy relies on nine elements. The following questions give you a complete picture of how a business operates and help you come up with your own business ideas:

1) Who are its customers? Define what group of consumers the business targets its product to. For example, if it sells children’s books, it’s probably targeting parents and preschools.

2) What channels does it use to communicate, sell, and distribute its products and services? For example, a business might rely on online advertising, an e-commerce store, and the postal system.

3) What sort of customer relationships does it establish? For example, it might offer a fully personalized one-on-one service to build customer loyalty. Or, it might offer automated services with no dedicated customer service representatives.

4) What value does it offer? How does its product or service benefit customers? For example, offers free and low-priced pdf services to individuals who don’t want to subscribe to traditional alternatives.

5) What resources does it rely on? A business needs one or more of the following resources to create and deliver its products to customers: material (for example, specific equipment), monetary, intellectual (for example, copyrights or patents), and human (for example, employees or specialists). 

6) What partnerships does it rely on? There are four types of partnerships a business might rely on: between non-competitors (eBay and Paypal), between competitors (Apple and Microsoft’s patent-licensing agreement), joint alliances (Ford and Toyota develop hybrid trucks together), and buyer-supplier alliances (Samsung supplies Apple).

7) What are its core activities? The main tasks that a business needs to focus on to operate successfully fall into at least one of the following three categories: production, troubleshooting, and infrastructure management.

8) How does it make a profit? Does it deal in single transactions or recurring transactions? Does it offer fixed prices or variable prices?

9) What are its costs? Does the business have one-off costs to produce and distribute a product or does it have ongoing costs such as salaries and office rentals?
How to Stop Living Above Your Means

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  • Why the only way to achieve financial success is to adopt an entrepreneurial mindset
  • Eight beliefs about money that prevent you from achieving wealth
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Darya Sinusoid

Darya’s love for reading started with fantasy novels (The LOTR trilogy is still her all-time-favorite). Growing up, however, she found herself transitioning to non-fiction, psychological, and self-help books. She has a degree in Psychology and a deep passion for the subject. She likes reading research-informed books that distill the workings of the human brain/mind/consciousness and thinking of ways to apply the insights to her own life. Some of her favorites include Thinking, Fast and Slow, How We Decide, and The Wisdom of the Enneagram.

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