Finance

5 Signs You are Living Beyond Your Means

Let’s be honest. It's quite easy to live over your means these days, especially when we live in an era where buying on credit has become the standard. That being said, just because it appears regular doesn't mean you're not endangering your current and future health. In contrast, learning to live below your means will help you avoid financial ruin and find the peace that comes with financial freedom. Who doesn’t want that, right? Here are 5 warning signs that you're living a lifestyle you can't afford - and how to get back on track ASAP.

January 10, 2022

5 Signs You are Living Beyond Your Means

Let’s be honest. It's quite easy to live over your means these days, especially when we live in an era where buying on credit has become the standard. That being said, just because it appears regular doesn't mean you're not endangering your current and future health. In contrast, learning to live below your means will help you avoid financial ruin and find the peace that comes with financial freedom. Who doesn’t want that, right?

Here are 5 warning signs that you're living a lifestyle you can't afford - and how to get back on track ASAP:

1. Not Saving Any Money 

Try investing 20% of your monthly salary, or even more if you can, to your savings. You should set aside at least 5% of your monthly take-home pay to support your retirement and any other large purchases or activities you may need to pay for in the future. You're living beyond your means if you can't accomplish that right now and end up with little or no money at the end of the month. Savings aren't a luxury; they're a must that should be included in every budget.

The fix: If you're saving about 5% or lower of each paycheck, that's an indicator that you're spending too much money, you want to save between 10 and 20% of each paycheck, that's a good rule of thumb to utilize.

2. High Credit Card Bills

Another indicator would be if your credit card bills are getting higher and higher, and you don't feel like you can pay them off each month, or you aren't paying them off each month. That's another indicator that you might be leaning on using credit rather than living within your budget. If you have a credit card balance and simply pay the minimum payment each month, you could end up carrying the balance for years and paying hundreds of dollars (or more!) in interest. Because you have an open balance on this card, you may be tempted to make more purchases.

The fix:  Get yourself back on track in the next few months by doubling or tripling the minimum payment due and start carrying cash when you shop.

3. Consider the Impact on Your Credit

Source: Vincere Wealth

Another indicator would be that your credit score is around 600 or lower. 

Living over your means can ruin your credit score as well as lead to debt and a lack of savings. This is partly because credit bureaus and lenders view someone with a high credit usage ratio, or someone who is utilizing a substantial portion of their available credit, as hazardous. If your debt becomes out of control, you may make late or missed payments, or even default, all of which can impact your credit score.

The fix: Here are ways you can quickly improve your credit score:

  1. Examine your credit score to determine why it is so low.
  2. Reduce your credit utilization % by paying down your revolving credit as much as feasible.
  3. Remove everything that is inaccurate (especially late payments).
  4. Add yourself as an authorized user to an old account with a good payment history and a low use rate. This is best done by a friend or relative, who isn't even required to hand you the card. 

4. Your Cost of Housing

If your housing costs are around 30% or higher than your monthly income, that's a sign that you are probably spending more than you make or living beyond your means.

The fix:  You have two options here:

- Look for strategies to increase your earnings. You can ask for a raise or promotion at your current employment, freelance for hire, or start a side business to supplement your income.

- Consider refinancing your mortgage to lower your monthly payments. (Ask a home loan advisor at (credit union) if this is the best option for you.) If your mortgage is causing you financial hardship, you may want to consider downsizing to a smaller, less expensive home.

5. Your financial decisions are influenced by your friends’ spending habits 

The pressure to keep up with the Joneses is greater than ever because of social media and the hyper-sharing culture it has engendered. You're probably spending more money than you can afford if you rely your financial decisions on your friends' choices, from what kind of shoes to buy to where you vacation.

The fix: Keep your attention on your own life and money instead of gazing over your shoulder. Try to be the budget-conscious influence in the group if your buddies have pricey tastes. You might be the start of a new, financially sound trend!

When you're living over your means, budgeting can assist. A budget is the first line of defense when it comes to getting your finances in order. Snag your FREE budget spreadsheet here to get started! Happy Budgeting!

What's the best way to get started with budgeting?

1. Begin by making a list of all of your bills and expenses, noting how much each one costs.

2. Then establish a plan for where you want your money to go and stick to it.

Note: You're allowing yourself more flexibility, despite the fact that it may appear restrictive. 

I hope this material was helpful to you. If you have any questions, feel free to connect with me here.

If you're interested in an investment advisory or financial planning relationship, you can connect with one of our advisors here.

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