Wednesday, May 16, 2007

Living Below Your Means (LBYM)

Getting rich is very easy to do. It involves the simplest math and the most fundamental rules of the universe: conservation of mass and energy (or in this case money).

It basically works like this, if money in equals money out then you are getting by. If money in is less than money out, you are going to be in trouble since your living beyond your means. Yet is money in is more than money out you are on the right path since you can now accumulating more money.

The problem with this idea is it is so simple that sometimes it doesn't sink in how easy it is to use it. So let's give an example. Suppose your a middle class family taking in $64,000/year, so after tax/CPP/EI in SK they would have $45,657 (use this handy calculator from to find out your after tax income). If you are only spending $31,635/year, that means you are living on a pretax income of approximately $43,000. So on a before tax and deductions basis you are saving $21,000/year or 33% of your income.

Now beyond the obvious cash flow for savings benefit of living this way there are a few additional benefits. First off you usually have cash saved up so what someone just getting by would consider an emergency, such as a furnace needing to be replaced, would be easy to deal with. Also if your find yourself on Employment Insurance between jobs some time you should be easily be able to maintain your standard of living even on lower income.

Yet the real crown jewel to LBYM is retirement planning. Since if your use to living on $31,635/year after tax and then you pay off your mortgage you would then be living off $21,495/year after tax. You can generate that kind of income in retirement a lot easier than someone else who is use to living off of the full $45,657, which in return means you can retire a lot earlier than someone that is just getting by.


Mike said...

Sounds too simple to be true!

Canadian Dream said...


The keystones are always easy, after that things get hard!


Adventures In Money Making said...

if only everyone understood the simplicity of it!

Turney said...

(LBYM)What a quaint idea! All kidding aside, my husband and I have done this all our working and non-working lives and we've been able to do all sorts of things most people only dream of. While we fully retired when we were 50, we're now 55 and we've been semi-retired since we were 40. We are very conservative investors but pay minimal tax due to those dividend paying stocks and limited withdrawals from our RRSp's. Consequently our investments are growing not decreasing. It's too bad more investment advisors don't give you the scoop on actual taxes payable with a conservative portfolio. Forget those mutual funds that have high MER's and trade stocks incessantly.
Another key to LBYM is that as Canada is one of the richest countries in the world, we can live very easily with items that have been discarded by people. Second-hand stores are abound with wonderful almost new items. And you are helping the environment. We have a lot to learn from our parents who never threw anything useful out.
It's all about making choices. What do you really want? You can't have it all but you can have many adventures. Last winter, we took a month and travelled by local bus through Mexico at for the cost of one week for two at an expensive resort. What memories!

Canadian Dream said...


Thanks for the inspiring story. I would be interested in learning a bit more about how you did it. If you are interested in sharing please email me (


Promod said...

If your out-go exceeds your in-come your upkeep will be your downfall.

I forget the source but not the quote.

Anonymous said...

The calculator doesn't include my province. :(

Canadian Dream said...


You are right they have missed QC. Here is a link to another one which is a bit more simple, but it works.