Why It’s So Important to Live Within Your Means

Budgeted for coffee, added wisdom on top ☕ Updated: November 20, 2025

Set Up  a Budget to Help You Live Within Your Means

If you want to successfully live within your means over the long term, you need to have some sort of system in place to record, track, monitor, and evaluate your spending. With whichever system you choose, consistency in the execution is paramount to your success.

Being a budgeting aficionado, it's no wonder I think a system is necessary to live within your means. But today my focus is not going to be on the how, but on the why. I hope to open your eyes to the benefit of living within your means, which is sometimes overshadowed by the ‘How' of the principle. It's a huge benefit. Perhaps infinitely huge.

Budgets Empower You to Take Risks

Forgive the shallow talk of getting rich for the next few minutes, but that is basically going to be the benefit I'll be talking about. We're just going to get at it from a different angle.

No—I'm not going to talk about how living within your means enables you to invest the difference in well-selected mutual funds and how, over time, the compounding of those investments will make you a millionaire (perhaps a few times over). We're going to talk about risk. Risk is a rich man's best friend, and the enemy of anyone living paycheck to paycheck. If you don't have a financial plan or you spend money without a budget, you can't take risks.

Why the Rich Stay Rich (and Get Richer)

I'm sure you've heard it often enough. The rich are privy to secret investments, inside networks of private businesses needing equity infusions, IPOs for only the accredited, sweet real estate deals, lucrative side partnerships, yada yada, etc., and blah blah.

Some people are bitter about the opportunities that apparently present themselves to the rich, other people only envious. I don't want to take any position here except the position that opportunities to earn more money do indeed present themselves. It's just a fact: Having more money in your savings account or a larger cash flow allows you more opportunities and financial freedom.

Consider the well-to-do person who is presented with an opportunity to invest $10,000 in a very small, private startup company. The person could very well lose their $10,000. They could also turn that $10,000 into $200,000 in a matter of five years. The person takes the plunge, writes the check, and invests the $10,000. Do they lose sleep at night because they have $10,000 of equity in some shaky startup? Not hardly. Why? Because they can afford the risk. It won't affect their monthly income, retirement savings, or cause them to borrow money if they lose it. They'll still cover their living expenses and have extra cash on top of that.

Consider the person who is not living within their means. $10,000 to invest is a dream to them and nothing more. If they did have the $10,000, they certainly could not afford to risk it on something as shaky as a startup company. Losing that would lead them to dip into emergency savings or may even mean they can't pay their monthly expenses.

However, if this second person cinched up the belt, got a budget, and gave him or herself a bit of breathing room, would a $1,000 investment in something seem so unbearable? Probably not. Could they afford a $1,000 loss if worse came to worst? Probably so. Now, they can take the risk and still have enough money to pay fixed costs and avoid debt.

Be Honest About Your Financial Goals: I Can't Afford That

A few years ago, in my corporate finance class, we talked about risk. Actually, we talked about it pretty much every day. The rule is that the return you require on your money invested should be equal to the risk you're taking when you invest. While there are a few people who are risk-seekers, and others are risk-avoiders, the core principle is the same. Where there is low risk, there is low reward. Where there is high risk, there is high reward.

The rich can afford to take on higher-risk projects, which gives them the opportunity for higher reward. Those living above their means, with no (or even negative) disposable income, cannot afford high-risk investments. As a result, they're immediately disqualified from high returns (we're talking about the norm here, not the exceptions to this rule). And if you can never “afford” to invest, you'll never be rich.

The trick is to get to that disposable income I've mentioned a few times. And begin investing.

While I'm not a Rich Dad, Poor Dad diehard, I did appreciate Kiyosaki's push to begin thinking a little bit differently about money. This is one of those ways.

I'm not saying you're going to suddenly become privy to new investment opportunities just because you now have some disposable income. What I am saying is that without disposable income, you cannot take advantage of any opportunities that may roll your way. And that would be a shame.

It’s the Famous Debt Snowball…in Reverse

Perhaps it will take a few years before something comes up in which you feel you could invest your disposable income. Perhaps you'll keep things simple and invest purely in index funds until another, erm, more flavorful opportunity comes along. But you can rest assured that the opportunity will come.

And maybe I've been indoctrinated by optimists (the class was called “Entrepreneurial Perspective” and every week a different “normal” speaker would come and tell the class how they made it big. The opportunities ranged from hair salons, to time organizers, to multi-family apartment buildings), but is there really any healthier way to be?

What will happen once you seize the opportunity to invest in a local hair salon? You'll probably need tax advice. You'll hire an accountant. A few years later, your accountant gives you a call because he has a client who's looking to market an invention and needs some equity partners. You've grown to trust your accountant, so you take a look at the opportunity. One of the other investors in this invention does a lot of residential real estate development and is wondering if you want to invest in a new duplex he's looking to build…

Of course, I'm making this up, but the principle I'm trying to illustrate is this reverse snowball effect. Opportunities beget even more opportunities, and after several years of waiting, avoiding large purchases, saving, evaluating, and networking, you'll have more than you can even possibly look at, and you'll be able to enjoy life.

The rich stay rich because they consistently find opportunities to invest their (large amounts of) disposable income. And I am saying that you can become rich by creating disposable income and searching for opportunities in which to invest it.

That is the benefit of living within your means. If you don't do it, your opportunities are severely limited.