What is meant by 'living within your means' Islamically?

‘Living within your means’ means that you don’t try to live beyond your means; example, your economics permits you to rent a house, instead of buying one. So, it means that you don’t go and try to buy a home, which would involve getting it through haram means; i.e. credit card, etc. Society encourages you to buy and spend beyond your means.

A person becomes a spendthrift, or squanders his wealth, when he buys things that are not a necessity, such as having 15 cars, when he can drive only one.

Allah describes those who squander their wealth as brothers of devils:

“Verily, the spendthrifts are brothers of the Shayatin (devils), and the Shaitan (Devil-Satan) is ever ungrateful to his Lord.” [1]

Islam does not permit this.

If a person is wealthy and can afford to buy a Rolls Royce and be happy with it, there is no problem with that if he also spends his wealth in charity. As long as he is giving what is required in zakah and sadaqah, he can keep his car as Islam doesn’t prohibit it. However, if he buys 10 of them, when he can drive only one, then that would be squandering.

If one can afford a palace, then the question is - how does he use that palace? Does he limit it only for the high class of society, or generously invite the lower class of society and offer them food as well?

This becomes a trial and fitnah for him if he squanders his wealth. That is part of the test of this life. It thus goes back to one’s intention - if he is using it to make a show, even if it’s only one, then he may be held accountable for it; but if he is getting good things because it serves him well, and doesn’t feel proud about it or look down upon other people, then it is of no harm, in sha Allah.

Reference:

[1] Surah Al-‘Isra, 17:27