Jack and Lee-Ann* are careful with their money. They pay all their bills on time, make more than the minimum credit card payments every month and they have a few dollars left over, which they keep in a savings account. Are they living within their means?

I would argue they’re not.

To be financially secure, you do need to spend less than you earn. That’s a necessary condition, but it’s not a sufficient condition. You also need to ensure that your outflow covers key areas. If these aren’t nailed down, financial stability is an illusion.

Four areas to consider:

#1 – Corrosive debt

If you carry a credit card balance at all, you are not living within your means. Why? Because credit cards should solely be tools of convenience, not a source of cash flow.

When you treat credit cards as a source for money, you are relying on them to fund your life. You’re using them to bridge a cash flow gap.

Here’s a quick test: If you only had access to the cash in your bank account, could you have purchased every item that is currently on your credit card statement?

It’s an illusion to think you’re living within your means simply because you cover off partial debt payments every month.

If we’re talking about paying a mortgage for an appreciating asset, that’s different. What I’m referring to here is debt payments for Lines of Credit, credit cards and any loans for consumer items.

I’ve written about the difference between corrosive debt and good debt in past posts, but it boils down to this: Debt for an item that takes money out of your jeans (liability) without putting it back in (asset) is corrosive debt. This is especially true if it comes with interest costs in the range of 18% to 24%.

Any way you slice it, credit card debt is evil. Think Voldemort here.

#2 – Planned Expenditures

Homeowners understand the unwritten rule that furnaces fail in the dead of winter. Also, stoves give up the ghost the night before you’re due to host the entire family.

These are the sorts of things that catch us off-guard and cost many more dollars than we’re happy to pay. We typically refer to these as surprises or unplanned expenditures, but are they really?

Gail Vaz-Oxlade, former personal finance writer, is fairly blunt in her assessment of people who are surprised by any system that fails in their home. Her point is that when you own something like a house or a car – in other words, a thing that breaks down – you should expect it to fail. You should also plan for its repair or replacement. The way to do that is to set up a savings account for planned expenditures. Every month, you put money into that account.

When something goes wrong in your house, or if your dog chews a kid’s toy and needs a trip to the vet, you have money on hand.

The bottom line is that you are not living within your means if a sudden repair causes you to go into debt.

Note that I’m not talking about suddenly discovering that your spouse has a serious disease and you face significant costs. That’s genuinely an emergency, and a shock. Hopefully you’ve got critical care insurance and life insurance to deal with some of life’s most unpleasant surprises. But the other stuff – the stove, the furnace, the car? Predictable.

It’s just a matter of when.

#3 – Saving and Growing

The more I research issues related to women and money, the more it becomes clear to me that we are not saving enough. Hence the Wealth Gap. The reason I’m being so picky about the issue of living within your means is because I want people to think about the results they desire.

If the goal is not to incur debt for consumer items, then that’s one level of living within your means. However, if you’re really after financial security, as most women are, then that involves much more than simply avoiding credit card debt and saving money for planned expenditures. It means setting aside funds and growing them to develop greater wealth. The ultimate goal is to create better options for yourself and your family and to achieve a state of peace of mind.

With wealth, you have choices.

Wealth does not happen by accident or by winning the lottery. It happens by systematically – or better yet, automatically – saving money and then investing it in vehicles that will make it grow. The latter requires setting aside enough money on a monthly basis for the express purpose of growing your wealth.

Even if you have credit card debt, I recommend setting up automated savings – just a tiny amount to begin with until your debt is paid off. Mathematically, the wiser choice is to pay off corrosive debt, but saving money is a habit that requires practice. Think of saving money as a muscle and start working it right away so that it can grow big and strong while you tackle the other areas of your life.

#4 – Mortgage Madness

“How much of a mortgage can I afford?”

That’s pretty much the way the conversation goes with most brokers when clients reach out to them before shopping for a house. In nearly ten years of evaluating Rent to Own files, I can tell you this approach leads to a lot of minimum down payments and house-poor families. Sure, they bought a home that the bank says they can afford, but now they have little cash left over for anything else. Forget about saving!

In his entertaining book The Wealthy Barber Returns, David Chilton recommends selecting a house that is well beneath your means. He, for example, lives in a modest house that he has owned for years despite being a wealthy author and investor.

If your housing choices don’t leave you with enough money left over to pay off your credit cards in full every month, set money aside for planned expenditures and invest on a regular basis, then this is an area that you might want to reconsider.

How to do it

So how do you pull this off, you might ask? Alan MacDonald and Paul LaBarge, co-authors of The Copperjar System, suggest the following approach: First, make a list of all your expenditures. Then:

Look at all the expenditures you’ve listed, and rank them on a scale of 1 to 10 – “1” being absolutely necessary for your survival, and “10” being a complete luxury. When you’ve got them all tagged, look at all the “10” items, and no matter how much you may be attached to them, cut them mercilessly out of your budget and your life. (We warned you this part might hurt.) If that doesn’t balance the books, move on down the list to the “9” items, then the “8”s, and so on.

Keep doing this until you reach the point where your budget breaks even. Then go a bit further, and you’ll find you’re now at the stage where you can finally put aside some savings.

If it sounds impossible, read Tahani’s story. She’s a single mom who had little money and virtually no income when she left her marriage. She was merciless about controlling expenditures in order to support her kids and pay off her first mortgage. Today, she’s a hugely successful real estate developer.

Whether or not you want to end up owning real estate is immaterial. The point is that controlling expenses and growing your wealth is doable by anyone.

Is it painful? Sometimes, but it’s definitely worth it.

And it all starts by truly living within your means.

If you need help figuring out how to make it all work, reach out.

*fictional couple