What does it mean to "live within your means"?

To "live within your means" refers to the practice of managing one's finances in a way that ensures spending does not exceed income. This concept is fundamental in personal finance because it promotes financial stability and helps prevent debt accumulation. When individuals spend less than or equal to their income, they are able to cover their necessary expenses, save for the future, and avoid the pitfalls of financial strain that can arise from overextending their budget. This practice encourages mindful spending and helps individuals make informed choices about their financial priorities, which contributes to long-term financial health.

The other choices present scenarios that do not align with this principle. Spending more than one's income leads to debt and financial insecurity, living in a smaller house is not inherently a measure of living within one's means as it depends on broader financial context, and investing all earnings without maintaining a balance for necessary expenses can jeopardize one's financial stability. Therefore, the choice that accurately defines "living within your means" is indeed spending less than or equal to one's income.