The idea of living beyond our means often brings to mind the recent television snippets about the three major American car manufacturers who came to Washington requesting a bailout. For companies in dire need of funds, they certainly had the audacity to arrive in their private jets. To add insult to injury, they came unprepared.
Why does that scene remind us of living beyond our means? The answer is simple: when large corporations are on the brink of bankruptcy, it’s often due to flagrant overconsumption of resources, which starts at the top and quickly trickles down to the bottom. This unchecked spending spirals out of control, leaving no resources behind. If senior management is engaging in wasteful practices, it’s likely happening at lower levels as well.
Examples of Living Beyond Our Means (at Work)
Let’s examine corporate life first.
Executive: Takes a private jet to a destination only 100 miles away.
Clerk: Throws out the coffee in the thermos and makes a new pot, even though the coffee was brewed only 45 minutes ago.
Executive: Buys $5,000-a-plate fundraising tickets for friends and family, totaling $250,000.
Clerk: Discards half a dozen hanging folders because she doesn’t like the color.
Executive: Approves a $300,000 budget for the employee Christmas party, then spends another $300,000 on an intimate dinner for senior executives and their wives. The party is held at a ski resort with overnight hotel packages, bringing the total tab to nearly half a million dollars.
Clerk: Pads his overtime sheet, almost doubling the number of hours worked.
Executive: Orders renovations to build an indoor parking lot for five senior executives.
Clerk: Orders a box of USB drives and CDs for backups, even though the old flash drives aren’t full.
Executive: Commissions three oil paintings from a famous artist for his office, costing the company half a million dollars.
Clerk: Takes home a box of paper clips, highlighters, and scratch pads for her child in school.
Perhaps the reason a multinational company is on the verge of bankruptcy is not so much a lack of sales but because of the irresponsible spending that permeates the corporation. It only takes a handful of culprits to start irrational spending, and the pattern often repeats at different levels. If we were to tally the resources being wasted, we’d probably be shocked.
Examples of Living Beyond Our Means (at Home)
How we spend our personal money reflects our tendency toward conspicuous consumption. Let’s explore a few scenarios where we may be living beyond our means without even realizing it.
Case #1: The neighbors installed a swimming pool. You’re envious and start asking around about how much a similar pool would cost. You’re already struggling to meet mortgage payments and your children are in private school, so you’re relying on a larger line of credit. Nevertheless, you go ahead and buy the pool. The salesman convinces you to add accessories and extra features like a cascading water fountain. Now, you’re not just living beyond your means—you’re also keeping up with the Joneses, which is a dangerous combination.
Case #2: Your daughter comes home excited about a two-week tour to London organized by her school, asking if you could pay for it. She was already on a two-week trip to Mexico six months ago, which you also funded. Not wanting to disappoint her, you agree. That’s two major trips in one year. Total cost: $6,500.
Case #3: Your husband asks you to choose between a high-end coffee machine ($1,800) and a set of three Lalique crystal vases ($1,500). “We can only afford one purchase this year,” he says. “Next year, you can get the other.” You choose the espresso machine. Two months later, the Lalique crystal vases go on sale, and you decide to buy them instead of waiting until next year as advised.
Case #4: You receive a sizable Christmas bonus. Instead of using it to pay down your mortgage or credit card debt, you make a down payment on the latest BMW model, just to get rid of your two-year-old car.
Case #5: You head to the supermarket with a cart overflowing with items that weren’t on your list, but you can make a week’s worth of meals for a family of four. Once home, you’re too tired to cook, so you pack everyone back into the car and head to a restaurant for dinner.
Deal with Your Means, Not Live Beyond Them
We’d like to offer some tips on how you can live within your means. You’d be surprised at how much you can save by practicing careful spending. After all, you have a mortgage to pay off for a long time—are you willing to mortgage your future and that of your children?
- Save gas by planning trips efficiently—consolidate errands in one direction. Carpool with school moms and choose a one-stop mall where you can do everything: post office, dry cleaning, groceries, etc.
- Repair now and renovate later. If you have money, prioritize urgent repairs. Save up for renovations in the future.
- Recycle ingredients whenever possible. We often get caught up trying new recipes that require expensive ingredients, only to use them once. Consider recipes that allow you to use up the ingredients multiple times.
- Use magazine coupons for everyday purchases like detergent, cleaning supplies, and baby items.
- Pay down credit cards with the highest interest rates. If necessary, consolidate loans to make one payment instead of several with varying rates.
- Don’t buy a new dress for the office Christmas party—accessorize instead.
- If you love wine but want to save, check liquor outlets where you can fill bottles from barrels. Everyday wine doesn’t have to be expensive, and bulk discounts are available during the holidays.
- Don’t sign up for that cruise just because the couple at the gym is going. Use the money to pay down debt instead.
- If your car is in good condition, keep it as long as possible. Say no to the car dealer’s tempting offers and flexible payment plans.
