As a personal finance blogger, I spend a lot of time thinking about money. How to make it, how to spend it, and most importantly, how to save it.
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Did you notice the wording there? The standard of living that you CHOOSE to maintain.
Yes, standard of living can definitely be a choice, although it’s not as simple as we might like it to be. Rather than just making a single choice once, we choose our standard of living over and over again as we go through life and make money decisions. The home we buy, the car we drive, the school we send our children to. All of these are financial decisions that heavily contribute to our standard, or cost, of living.
Best Money Tip: Choose Your Own Financial Age
My BEST financial tip for you is simple:
Pick an age when you had enough money to get by, and continue to live like you are that age for years after the fact.
This will be a different age for everyone, but for most of us it will be an age when you were relatively young, working, and with some financial obligations. The reason I say SOME financial obligations is because if you lived with your parents for an extended period of time then it’s going to be difficult to maintain that same level of living expenses when you finally move out.
For a lot of people, I think somewhere in the late 20s or early 30s is a good standard of living to attempt to maintain (I always say age 28, but this is not a one-size-fits-all deal). This is hopefully an age where you’re past the mostly Ramen diet. This is also hopefully an age where you’ve been at your job for a while and are starting to have some pay raises rolling in. Maybe you’re married, maybe you’re starting to have children.
In other words, the late 20s can be a financial fork in the road for many people.
You’re not poor anymore. And that means that what you do with your “extra” cash from here on out can seriously make ALL the difference. Living well below your means is a critical component of wealth building for most people.
The really fantastic thing about “freezing” your standard of living at a certain age is that it can be a powerful way to free up cash for years to come. What could you do with that extra cash? A LOT. You could crush your debt, max out your retirement contributions, or save for your children’s college education. You could start to think about investing, be it in investment funds or possibly real estate investments. You could start to play around a little with a practice trading account to get your investing feet wet. Or you could do ALL of those things!
It is totally possible to do this, folks. For example, I know a guy who painted houses for a living. He lived in the crappiest apartment for the better part of two or three decades, choosing to invest much of his take-home income in stocks. He only painted maybe 7 months a year because he lives in a part of the country that has cold winters. He recently retired from house painting- in his 60s- as a millionaire. Who would have ever guessed that you could paint houses for a living- not even year round- and retire a millionaire? THAT’s the power of a low cost of living.
I’m not saying that you necessarily have to live in a crappy apartment or paint houses to accomplish this- but clearly he was living well below his means, and it paid off in spades.
When Mr. CMF and I moved to a different state two years ago, we deliberately downgraded our lifestyle. We sold our newer nicer home back there and purchased a cheaper older home in this town. Our current home has two bedrooms; our former home had three.
Now that we have become parents, we do miss that extra bedroom. I have to admit, it was pretty cramped recently when our extended family came for Thanksgiving. My mother and sister slept on the couch and chair in our living room. Just a few years ago we would have had a spare bedroom for them to sleep in- but not anymore.
Similarly, we kept our old beater cars for the longest time, long after friends and family started asking when we were going to replace them. We finally did replace one of the beaters when we adopted our daughter in summer 2014. The other beater we are going to keep until it dies.
We don’t have cable. We rarely go to movies. We rarely buy ourselves new clothing. We could probably “afford” all of these things- but we choose not to. Oh, and the money we make beyond what’s needed for our living expenses? It’s going toward extra student loan debt payments and investments. For us, using free online resource Personal Capital (review here) really helped us to see where our money was going and establish a better budget, as well as better plan our retirement savings strategy. Knowledge is power, right?
I hope it doesn’t sound like I’m bragging here. We are not perfect and we’ve certainly made our share of financial mistakes in the past. The main reason that I tell you all this is to help you imagine what might be possible for you in your own life.
Now that we are parents we are challenged with figuring out how to continue to maintain our “age 28 standard of living” (by the way, I forgot to mention that we are 35 and 40) while facing our new responsibility. There’s no question that expenses have gone up since we became parents. But I am finding, at least at this point, that babies do not HAVE to be expensive. There are cheaper alternatives for many things, and not all baby gadgets are a necessity.
So how long can you keep living like you’re 28? I think my friend the painter is proof that you can do it an awfully long time! If you’re already living beyond that, as we were, it’s still not too late to make a change. You just have to decide that it’s important to you and let that guide your financial decisions going forward. We are planning to keep living like this at least until our student loan debt is gone- likely a lot longer.
How about you? Are you actively working to keep your standard of living low? What “financial age” are you living at?
Suggested Reading: My very favorite personal finance book, The Millionaire Next Door, is one that I highly recommend because I think it does an excellent job of highlighting the importance of living below your means. If you want to hear more inspiring stories of how it’s possible to achieve wealth no matter your income, this is a truly excellent read.
P.S. If you liked this post, you might enjoy using our free Net Worth Calculation Template. Sign up now to receive each new post delivered to your inbox, and we will email you the template! Sign up here.
CMF’s favorite FREE money management tools!
Some of the best online tools out there for money management are at Personal Capital, and the awesome news is that they are all FREE! Cash flow tracker, 401(k) fee analyzer, investment checkup, net worth monitoring, and many more! I’m a net worth junkie, so the net worth monitor is my favorite. Check out my Personal Capital review here, or click here to check out all the awesome tools for yourself!