By: Invested Wallet In our consumer and debt-heavy society, living beyond your means is all-too-common. And unfortunately for us, it can put us in tricky financial situations. Considering how easy it is to impulse buy online, use credit cards, and not physically have cash in hand, we end up spending more than we make. This process has become so normalized, that we overlook the financial dangers and live a lifestyle that can be too expensive for our own good. While it may seem okay because so many are living beyond their means, it shouldn’t mean you need to endanger your own financial well-being. Below are a few warning signs you should watch to ensure you are not living beyond your means.
1: You Notice You are Living Paycheck to Paycheck
78% of full-time workers said they live paycheck to paycheck (CNBC) Now, this might not signal right away that you are living beyond your means. You might be underpaid, living in an expensive area, or have some other financial circumstances putting you in this situation. However, a lot of times you may be upgrading your lifestyle or just overspending that causes you to barely squeak by every pay period. Take a step back, look at your paycheck and see where your money is going every week. You may discover some serious cutbacks you can do to help you get out of the paycheck to paycheck slump. I’ve been there before and it’s not fun. Even though I was only making $36,000/year at the time, had not been overspending on things I could barely afford, that situation would have been different.
2: You Have Little to No Emergency Fund
One thing I roll my eyes to in most personal finance articles is when they talk about having an emergency fund. We all should know it’s important to have one and we all do typically want to save money. Yet, as much as I did not want to include this here, it needs to be added. You might be living beyond your means if:
- Your emergency fund cannot cover at least 3 months of expenses
- You are not putting aside any money consistently each paycheck for your emergency fund
- You currently do not have one
This is why it is critical to look at your overall spending, find where you are making mistakes, and start to correct those bad money habits. Not everyone is going to be able to save a big percentage of their income, but try to find 5-10% of each pay to put aside. By the end of one year of consistency, you’d be surprised how much you will have saved.
3: You’re Carrying a Balance Each Month on Credit Cards
I’m guilty of this one in the past, but I was living beyond my means at the time. Credit cards are great for building credit, getting some rewards points, and can help you out in an emergency. But, too often we use it to buy things that are beyond our means. Then you end up carrying a balance month to month. This signals that you’re certainly spending more than you can afford. While you may be making monthly payments, you probably continue to use that card to rack up more of balance, and you get hit with interest rates. Start making double, triple, or extra payments each month to get caught up and put your credit card away to avoid use until you get your spending under control. If you are tempted to buy a higher priced item, ask yourself if you have the cash to pay it off right away. If you don’t, keep the credit card in your wallet.
4: You Aren’t Saving For Retirement (Or Can’t)
Not everyone is able to save for retirement at certain points of their lives. Many also struggle to provide for their families and put food on the table. So the thought of putting money aside for retirement is usually an afterthought. But for those you have taken expensive vacations, always getting the latest tech, or upgrading to a luxury vehicle, but you have not saved for retirement — you are living beyond your means. I’m all for treating yourself every now and then, but only if you are already saving for an emergency fund and also save for retirement. Then, by all means, upgrade to the latest vehicle and go on a vacation. I don’t want to tell you how to spend your money, but saving for your future early is better than the temporary satisfaction you get from possessions or a vacation.
5: You Worry About Paying Bills Constantly
Look, we all worry about paying bills in our lives, unfortunately. It’s a part of life, but the goal should be that you are not losing sleep or stressing constantly about them. If you find yourself constantly stressed out about bills or how you are going to pay them, you might be living beyond your means. I say “might” because again, everyone’s situation that is reading this might be different. Many might be living below their means, yet are still worried about money. I hope to provide more insight and content about those situations as well in the near future. But, for if you always have the most expensive items and are struggling to pay recurring monthly bills, you are living beyond your means.
6: You’re Paying Too Much for Your Mortgage or Rent
Many times, we bite off more than we can chew which can put us in some financial hurt. When I was living on my own, I could barely afford everything including rent. I was totally living beyond my means. For housing, just because a bank gives you a loan or says you can afford this much more, doesn’t mean you should do it. You need to be proactive and do some math yourself. (I know, I know, math?) I’ve seen various numbers for a 30-year mortgage, but generally, you should not spend more than 30-35% of your monthly gross income. Obviously, the lower the percentage the better. Check out this calculator on Bankrate to figure how much house you can afford. Renting an apartment is pretty similar too, although I’ve seen this more in the 35-40% range. Again, I’d recommend keeping this closer to 30% if you can. It helps if you live with a significant other or roomate(s). Zillow has a nifty rent calculator to determine how much you can afford based on your gross income.
7: You’re Trying to Keep Up With The Joneses
You’ve probably heard the phrase, “Keeping up with the Joneses” before. If not, it simply means what your friends, family, colleagues, or neighbors have, you try to match or surpass them. This notion has been around a long time, but with social media, we have quicker access to everyone’s possessions, homes, traveling, or apartments. Many people buy things to then post and seek validation. Thus, causing others to feel the need to keep up with what their friends are doing and buying. But this is what gets you to overspend, start bad money habits, and can put you in unnecessary debt.
- Ignore what others have and stay focused on you
- Realize that most of those people are also financially struggling or in massive debt
- Ask yourself, “Will upgrading or worrying what others have, make me happier?”
It doesn’t matter if you are middle class or even a high-earner, you can still be living beyond your means. How many times have we heard the story of millionaires going bankrupt? Or those who never made more than $50,000/year retire comfortably? Plenty! Living beyond your means can grip any demographic and any level of salary, it’s your mentality that can make the difference. If you find some or all of the above warnings a constant in your life, then you probably need to make some lifestyle changes. Republished with the permission of InvestedWallet.com.