Having financial problems and living beyond your means is pretty normal these days. We live in a time when carrying a balance on a credit card has become the norm. But just because everyone else is doing it doesn’t mean you aren’t cheating yourself out of a better life.
Here are nine signs that your lifestyle could be putting your finances in danger — and how to get yourself back on track.
Signs That You’re Living Beyond Your Means
1. You Need Help Paying Bills
If you’ve lost your job or been unable to work because of an illness or injury, it makes sense that you need help paying bills. But if friends and family are helping you out financially any time something unexpected comes up, you need an emergency fund.
Instead of going out to eat or shop, set aside some money to grow your savings account. Try one of these money-saving challenges to jump-start your savings. Keep $1,000 in emergency money for things that aren’t included in your everyday expenses.
2. You Have Poor Credit
Credit bureaus use information about your payment history, and loan balances to compile a credit score for you. A credit score can range from a low of 300 to a high of 850.
If your score is below 600, you’ve probably had trouble paying your bills on time, or you’re using too much credit – all signs you’re living above your means.
Having poor credit can cost you money. Insurance companies charge more for people with a low credit score. Interest on loans and credit cards is generally higher for people with a low score. Try these tips to improve your credit.
3. You’re Not Saving For Retirement
Those who don’t want to work until they’re ninety need to make sure that they aren’t one of those who is spending more than they make. If you can’t save at least 5% of your gross income, you are likely living above your means.
Most financial advisors suggest saving at least 10% of your gross income. If you make $100,000 per year at age 30 and you put 10% in a 401k, it’s possible to have close to a million dollars by age 65.
Get into the habit of paying yourself first, so your money goes directly into a savings plan. You’ll have less temptation to spend money that you never see.
Start by using an automatic savings app to save a small percentage of your money and gradually increase the amount and switch to a retirement account.
4. You Carry A Balance On Your Credit Card
A good sign that your in over your head is having a rising credit card balance each month. If you’re only making the minimum payments on your cards while you continue to charge, it’s time to make a change.
At one time I had $5,000 in credit card debt, it was an awful feeling. It was hard work erasing that debt, but I promised myself that once I got out, I would never let it happen again.
Now I don’t charge anything unless I know I can pay off the balance when the bill comes. I use a check register to keep track of the money I put on my credit card, so I don’t overspend.
If you’re carrying a balance on your credit card, it’s time to create a budget and start paying off your debt. At the very least, make sure you are paying on the principal amount and not just the interest on your card.
Making the minimum payments on $5,000 in credit card debt will cost you more than $8,000 and take close to 13 years to pay off.
5. You’re Paying Too Much For Your Mortgage Or Rent
A house will probably be the biggest purchase you make in your lifetime, so it’s important not to take on more than you can handle.
As for monthly payments “according to the Federal Housing Association, a good rule of thumb is that most people can afford to spend 29 percent of their gross income on housing expenses.”
Take the total amount of money that you make in a month and multiply that by .29 if that total is less than your monthly house payment, your probably paying more than you can afford.
For example, if your monthly income before taxes is $5,000, then your house payment or rent should be less than $1,450. Don’t forget to include insurance and property tax, that could add a significant amount to your monthly mortgage.
6. You’re Driving A Car You Can’t Afford
A lot of people struggle to pay their bills and put some money in savings because they think they don’t make enough money. The truth is a lot of people are struggling because their car payment is too high.
I made car payments for many years until I realized how much easier my life would be financially without that huge payment.
Now I drive a car that’s over ten years, and I don’t have a payment. I save money now and pay cash for my vehicles – saving is much easier without a car payment.
If you’re not ready to pay cash for a car then consider the following guidelines for financing that most experts recommend:
- Monthly car payment no more than 15% of your gross pay
- Down payment at least 20% of the purchase price
- Car loan should be no longer than four years
For example, if your monthly income before taxes is $5,000, then your car payment should be less than $750. A 4-year loan with a 6% interest rate, will allow you to borrow about 32,000. Make a 20% down payment of $6,500, and your budget for a car will be $38,500.
7. You Live Paycheck To Paycheck
If you’re completely broke before you get your next paycheck, it’s a good sign that you’re spending money on things you can’t afford. Things to consider: Do you need 500 channels to watch on TV? Could you pack your lunch instead of eating out?
Take a hard look at the difference between wants and necessities. One way to get back on track is to try a no-spend challenge. For 30 days don’t spend any money unless it’s an absolute necessity.
Buy groceries, pay your bills, but no eating out, shopping, or going to the movies. Once you become aware of how much money you need to live, it will be easier to change your mindset about spending.
8. You’ve Bounced A Check
Not having enough money in your account to cover a check that you wrote is a good sign that you have a financial problem. Banks often charge huge fees when you bounce a check. It’s best to try and avoid all banking fees if possible – including atm fees.
Some fees seem minimal; maybe the bank only charges $1.00 to withdraw from the atm. But fees add up, so it’s best to avoid them altogether. Keeping track of the balance in your checking is one way to avoid overdraft fees.
There are a lot of great apps to keep track of your checkbook balance. Some people find that paying cash for everything is an easier way to manage money.
9. You Haven’t Set A Budget
Creating a budget is one of the most critical steps to avoid a financial problem and live within your means. People tend to avoid budgets because they think it’s like a diet where you deprive yourself to achieve your goal.
You can’t expect to get ahead if you don’t have a plan for your money. Creating a budget can help relieve the stress associated with bills and financial problems.
A budget will make you aware of where you’re money is going and give you insight into ways to make it go farther. If you ever hope to build wealth or achieve financial freedom, you need a plan.
None of us are perfect, we all have areas in our finances that we can improve. To avoid financial problems, it’s important to check your financial health regularly.
Want more tips to master your money? Sign up for our newsletter and get tips to make and save money as well as free printables to manage your money.