Standard of living: find out if you’re living within your means.

This craving for consumption is a possible cause of debt, financial insecurity, and a troubled relationship with money. Even so, one in four american lives beyond their means. To find out if you are part of this statistic, follow the topics below:

• What does standard of living mean?
• The balance between standard of living and income.
• 7 signs that you’re spending more than your income allows.
• 5 tips for maintaining a standard of living consistent with your income.

With an ideal standard of living, it will be much easier to maintain financial health.

So, what does standard of living actually mean?

Standard of living is the level of well-being and access to goods and services of a person or social group, based on their purchasing power and income. At its minimum, it means living with dignity, comfort, and leisure, but there are no limits to the ideal standard of living for each individual and family.

For some, a simple standard of living is enough, with modest housing, basic services, and few expenses. For others, the standard is much higher, including luxury goods , top-tier services, and multi-digit monthly bills.

Furthermore, the measure of the standard of living depends on the socioeconomic context, the cost of living , cultural issues, and various other criteria. But, in general, we can divide the different levels in this way:

• Low standard of living: This refers to the minimum standard for living with dignity and having basic needs met, including low-cost housing, sanitation, access to public education and healthcare, household appliances, a balanced diet, and leisure options (usually free).
• Average standard of living: This is the standard of the middle classes, which includes a car and home ownership, internet and cable TV, access to schools, courses and universities, health insurance, quality clothing and appliances, the ability to pay for services and also go to the cinema, theater, shopping mall, as well as travel periodically (and if possible, have financial reserves and investments).
• High standard of living: This is the most luxurious and expensive standard, encompassing all the goods and services of the middle class in a superior category , including high-end homes, luxury cars, designer clothes, and exclusive services. International travel is frequent, and expenses are consistent with an income well above average.

Standard of living vs. quality of life

While quality of life encompasses all human needs , including health, education, housing, well-being, and security, standard of living refers only to the material component of life—that is, the quality and quantity of goods and services acquired. Therefore, it is possible to have a satisfactory life spending little, just as it is possible to live dissatisfied even with very high expenses.

It’s important to keep this difference in mind to understand why so many people spend more than their standard of living allows, and yet still fail to balance their wants and needs. This happens because financial health is far more important than a high standard of consumption.

In other words, it’s much better to have a balanced budget, met needs, and a healthy relationship with money than to work to maintain a high standard of living and not even be able to save money for unexpected events and future plans—and still live stressed out with bills piling up.

Standard of living vs. income: a complicated equation.

As we’ve seen, standard of living is directly related to financial capacity and consumption habits. Therefore, in theory, people should base their ideal standard of living on their disposable income, right?

 

In other words, 40% of the population meets the following criteria:

• He lives paycheck to paycheck, ending the month with nothing left to make.
• Accumulates debts beyond your financial capacity.
• Unable to make ends meet each month and ends up in debt.

Furthermore, 54% of consumers are dissatisfied with their current standard of living, while 92% believe it will be more difficult to raise that standard in the coming years. According to the research, these are the items that indicate an average standard of living:

• Assets: house, car, appliances, clothes, decorative items
• Communication: home internet, cable TV, cell phone plan
• Health: private health insurance and access to sports activities.
• Education: private school, courses and degrees
• Leisure: go to the theater/park/cinema at least once a month, to a restaurant/bar twice a month, and travel once a year.
• Food: buy as much fruit, meat, yogurt, sweets, and frozen foods as you like.
• Finances: having a financial reserve and investments.
• Services: hire a weekly cleaning lady or a live-in maid.

7 signs that your standard of living is above your income.

Are you living beyond your means and compromising your financial health ? Check out the signs that your spending has exceeded your income:

1. You can’t save or invest: if you end the month with nothing left over and not a single real to save or invest, it’s a sign that your lifestyle is already misguided, because financial health depends on savings and investments.
2. You resort to credit for basic expenses: it’s not normal to be in debt and resort to overdraft or credit cards to cover your monthly bills.
3. You’ve entered the revolving credit trap on your credit card: reaching the point of paying only the minimum on your bill is a very bad sign, as revolving credit interest rates are the highest on the market.
4. You owe more than you own: if the sum of all your assets is less than your debts, it’s time to worry.
5. You spend to keep up appearances: spending and going into debt just to keep up with the lifestyle of your social circle or to maintain appearances is a serious financial—and emotional—problem.
6. You wouldn’t know how to handle unexpected events: if your biggest fear is getting sick or losing your job, it’s because your standard of living doesn’t even allow you to cope with financial surprises.
7. You can’t afford to maintain what you buy: there’s no point in buying a more powerful car or a bigger house if you can’t afford the maintenance costs .

5 tips for maintaining a standard of living consistent with your income.

If you want to align your lifestyle with your income, simply do some calculations and commit to your financial health. Here are some tips to help you stay in control.

1. Plan your budget based on your net income.

The first tip for maintaining a standard of living consistent with your income is to plan your budget based on your net income . In other words, consider the value of your salary or earnings after deducting all taxes, fees, installments, charges, and other debts.

2. Create your budget template.

Only you can determine the ideal distribution of income for each item in your budget , but there are some reference models, such as:

• 60/10/10/20 Model: 60% for essential expenses (housing, food, transportation, health, etc.), 10% for short-term goals (emergency fund, major purchases), 10% for long-term goals (investments, private pension ), and 20% for discretionary spending.
• 50-15-35 model: 50% for essential expenses, 15% for financial priorities (debt repayment or investments), and 35% for lifestyle expenses (leisure, entertainment, shopping).

Of course, you will have your own percentages and priorities . The important thing is to respect the budget, reduce unnecessary expenses, and rigorously maintain savings.

3. Always live one step below what your income allows.

Regardless of your income, you should always live one step below your financial means. Even billionaires like Warren Buffett and Mark Zuckerberg, from Forbes’ global ranking, use the strategy of spending less than they earn to accumulate wealth—and yes, they forgo some luxuries even while earning millions.

This is the secret to avoiding an effect called “cost of living inflation ,” which leads people to increase their spending every time they get a raise.

4. Use credit responsibly.

If you frequently use credit, it’s because you still confuse standard of living with quality of life. With conscious use , you’ll think twice before taking on debt and having to pay interest, preferring to postpone the purchase rather than compromise your income.

Exceptions include situations where it’s advantageous to take advantage of a promotion or make a purchase early—in that case, calculate the total effective cost and fit the installments into your budget.

5. Prioritize long-term investments.

Finally, prioritizing long-term investments is a way to live a realistic standard of living and prepare to maintain that standard in the future. Research by SPC Brasil highlights the fact that 93% of peoples want to have some financial reserves or investments such as private pension plans, but are unable to do so due to financial mismanagement.

By taking out a private pension plan, for example, you can make monthly contributions according to your budget and ensure the building of assets . In this way, you secure your quality of life in the future , such as the much-desired tranquility in retirement, and live a more consistent lifestyle in the present – ​​since you won’t simply spend your entire salary without thinking about tomorrow.