Last week I touched on how Kellie and I were able to realize our dream to move to Star Valley, Wyoming and start Hale Financial Solutions. We did this through “an established habit of living beneath our income.”

So why “beneath” our income and not “within” it?

If you are currently living within your means--whatever they may be--I applaud you. It truly takes hard work and commitment. Humans are hardwired to want more and more, and restricting yourself to having no more than your income can get you is a slap in the face to our very worldly nature.

However, if you’re willing to take things a further, work on living not just within your income, but beneath it. Here’s why I think it’s so important and some ways to do it.

Expecting the Unexpected

After the iPhone’s debut, there was a lot of talk among academics and the business community that Apple had brilliantly anticipated a product that consumers didn’t know they wanted.

It was true. Few could describe a device with apps, wifi, music, texting, and which you could still have a conversation into. But it came and there was almost this collective response: “Oh my gosh, I can’t believe this exists!”

To a much lesser degree, I’ve had client discussions where I’ve said, “Hey, you’ve got a couple of kids now. Did you know about [such and such] tax-advantaged approach to saving for their college?” And people are kind of amazed. They think, “Wow, what a great tool. I never knew something like that existed!” (Those moments make my job SO worth it)

Living within your means is awesome, but family life is always shifting. Next year your family may develop a new vision of what they want from life. You may be setting money aside for retirement, but you may also learn of some great ways to use money to make your lives easier or more comfortable and there isn’t room left in the budget. Living beneath your means ensures there’s room for unrealized financial goals.

How to Live Below, Point 1: Beware of Pay Raises

Pretend you’ve just had your annual performance review at your job--and it’s all stars. Congrats, my friend. You’ve got a raise coming!

Most of us take a raise and quickly adjust our expenses to the maximum amount we’re earning. This is called “Lifestyle Creep” where our expenses creep up (rather quickly, actually) to meet the newfound income.

But what if you increased your living expenses to just 50%, and the other 50% went to some new financial priorities for your family? So for a 10% raise on an annual income of $80,000 you would adjust your living expenses upward about $333 per month and the remaining $333 per month would be earmarked for other financial priorities. Could you do it?

As a good next step, and to make saving easier psychologically, those new priorities could be automated--such as automatic deposits to an 401(k), 529 Plan, or life insurance policy--helping you avoid the temptation of spending the money in the first place.

How to Live Below, Point 2: “If Thy Right Arm Offend Thee, Cut it Off”

Making an honest assessment of which of your monthly expenses are actually necessary is an important but painful exercise. I’ve spent years justifying certain expenses that didn’t hold any weight to more important priorities. Here are some of the biggies I see as an advisor:

Credit Card Debt

Credit card debt should be “offensive” to everyone. The average interest rate is around 15% and for those carrying a balance the total owed is about $16,000. The interest on that is money you’re losing. If you’re carrying a credit card balance, you’re better off paying it down as quickly as possible, saving you precious interest each month, and cutting the card(s) to bits.

Expensive Cars

America’s obsession with nice automobiles is an incredible thing. I remember driving through Los Angeles a few years ago for business. My rental car was a new, black VW Passat. I felt great in that quick little car! Then I went driving. First I was passed by a BMW 7 Series, then a Porsche followed by a brand new Lexus. Pulling into the bank and spotting a red Lamborghini was the last straw. Suddenly my nice VW felt like a piece of junk.

Many of us need a slice of humble pie when it comes to the cars we own. Selling a new car for a used one (Editor’s note: Used does not mean old and crappy) will not only lower your car payment, but probably your auto insurance bill as well.

Large Homes

Many people would truly rather cut off their arm than downsize their home, especially because a home is generally considered an appreciating asset. But if you have other financial priorities that can’t be fulfilled because of your high monthly mortgage payment, then you should take a close look at your mortgage payment. A family that is “house rich” but devoid of sufficient life insurance, retirement savings, and is carrying a credit card balance needs to rethink its priorities.

And of course, bigger homes mean bigger heating/cooling bills, more property taxes, and more upkeep costs. These are all very real expenses.

Remember that financial goals are a moving target. What’s important to your family today may not be that important tomorrow. That being said, it’s still worth making a deliberate plan and moving towards it, making little turns and pivots along the way. A big plus to any financial plan is to have an extra cushion in your spending for a previously undiscovered but highly desirable future for your family.