Abstract Reducing deforestation and environmental degradation in the tropics while alleviating rural poverty requires effectively engaging with small-scale fishing, farming and forest-dependent households. The changing aspirations of rural households, however, have increasingly been attributed as the cause of rural households changing from ecologically sustainable to intensive and destructive livelihoods and natural resource uses. Theories of rural household decision-making, however, have historically used normative assumptions about rural households that have not addressed the interconnections between culturally and locally specific community living standards and livelihood decisions. In this article, a novel framework for assessing household goals and community living standards is presented, along with how these differentiated goals are tied to household livelihood strategies. Through case studies of fishing, farming and forest-dependent communities in a coastal landscape in Indonesia, the orientation of household livelihood strategies towards the achievement of household goals are demonstrated. The consistency and differentiation of household goals within and between communities is also discussed, demonstrating that smaller, insular communities are more likely to have homogeneous living standards than larger, more integrated communities. In addition, the mechanisms that facilitate changes in community living standards and household goals change are also discussed, which include access to consumer markets, social integration and the provision of government infrastructure and services. The results demonstrate that a comprehensive understanding of rural household goals and community living standards is a critical first step for understanding and influencing rural household livelihood strategies. Through addressing the motivations of rural households more systematically in association with their livelihood strategies, more effective, equitable and acceptable interventions for addressing environmental degradation caused by small-scale producers are possible.