Dave Ramsey has a great saying: “Act your wage”. In layman terms, this means live within your means. Our post-modern society has concocted a variety of ways to allow us to do just the opposite.
Just because you can Doesn’t Mean you Should
When I applied for a mortgage, I was pre approved for 1.5x what I wanted to spend to buy a home. Good monetary habits require you to do research. Asking how much house you can afford before you take the highest number you are offered can save you many headaches down the road. When you think that creditors have your financial security in mind, you can be tricked into thinking you have more means than you do. In slang, you act above your wage. You could quickly find yourself strapped for cash when the bank told you you could “afford it”.
Interestingly enough, when I looked toward buying a car, it was even worse. They approved me for a loan three times as large as what I needed to buy the car I wanted. Enough money to put a down payment on another home! Obviously, I spent no more than I intended to, but the thought of having a car the price of a down payment on a house is absurd.
Don’t Keep up with the Joneses
The “average” American is saddled with debt of all kinds. Most notably a mortgage. Most financially savvy people would agree that this is a good and almost necessary form of debt. The average non-mortgage debt in 2018 was a whopping $38,000! So as you can see, many of your neighbors who you think “make a lot of money” or “are doing really well” are in fact not doing well at all.
Acting your wage means knowing that you can enjoy the finer things in life, but only after you have attended to the necessities. There are lots of great rules of thumb for how much money to save and spend depending upon your stage of life. I have even written about it. Find reputable (hopefully financial independence oriented) advice, and stick to that to start. Unfortunately, our current financial system does not have your best interests in mind. Thanks for reading!